As reported last week, on August 30, 2023, the U.S. Department of Labor (DOL) announced it is proposing a revised rule that will increase its Salary Level Test by revising part of the Exemption Tests in its regulations. To be classified as an exempt employee under the DOL regulations, the job must meet three tests as outlined by the FLSA regulations:

• Salary Level
• Salary Basis
• Job Duties

The newly proposed threshold is $1,059/week (about $55,000/yr.). The current Salary Level Test threshold is $684/week ($35,568/yr.)

The Salary Level Test addresses classification of bona fide executive, administrative, and professional employees. If a job classification meets the three tests defined for executive, administrative, and professional, they are exempt from minimum wage, overtime, and certain recordkeeping requirements under the FLSA.

What does this mean? In addition to paying the positions on a salary basis and meeting the job duties tests, employers that have classified jobs as executive, administrative, or professional exempt would now have to pay these positions a salary of at least $1,059/week to continue qualifying them as exempt.

This exempt minimum salary change is anticipated to significantly impact businesses in the restaurant, retail, and hospitality industries.

Other changes to the proposed FLSA regulations are:

• The highly compensated exempt salary level test will increase from $107,432 per year to $143,988 per year.
• U.S. Territories overtime protections will apply to the U.S. Territories of Puerto Rico, U.S. Virgin Islands, and the Commonwealth of Northern Mariana Islands. American Samoa would have a special threshold of 84% of the standard salary level and until the American Samoa minimum wage would equal the federal minimum wage. (Still $7.25/hr.)
• The earnings threshold will automatically be updated every three years. (This should be a concern to employers after recent wage inflation.)  

There was some talk that some of the Duties Tests would be changed. This did not happen withing these proposed regulations.

Pursuant to how regulations are finalized, there is a 60-day comment period that began last Friday. A final rule may change some of the proposed rules and will likely take several months after the comment period ends. This timeline is subject to whether a court takes up a challenge or some congressional challenge may occur. Then, barring some stay or other delay, the effective date of the final rules is usually 60 to 90 days after publication. So, there is time to prepare.

In 2017 a Texas District Court stayed a proposed rule increasing the salary level test. The ruling at that time found the U.S. Department of Labor (DOL) overstepped its authority and its increase of the salary level test at that time usurped the Duties Tests. This ruling was never overcome.

There is also a federal bill in Congress called the Restoring Overtime Act that would implement into law the Salary Test and take the test up to $75,000 by 2026. If this bill is passed it would put the Salary Test in by statute and overcome a challenge to the DOL’s power to administratively change the law as it unsuccessfully did in 2017. 

During the comment and subsequent period of review and before issuance of a Final Rule, ASE recommends employers review their exempt jobs to ensure compliance. 

Sources: Seyfarth Shaw. DOL Delivers A Proposed Salary Bump to FLSA Overtime Thresholds for Labor Day (8/31/2023)

Clark Hill. 5 Things Employers Should Know About the DOL’s Proposed New Overtime  Rules (8/31/2023)

Law 360 Employment Authority. DOL Overtime Proposal Fight Is On Horizon. (8/30/31)