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This is part of a series of articles by Wright Lindsey Jennings’ labor and employment team examining key trends for employers and the workplace in 2024, authored by attorney Shelby Shroff. The series was featured in Arkansas Business.
Employers of salaried workers may soon be required to change the status of many of their exempt employees to non-exempt under the Fair Labor Standards Act (FLSA).
As a reminder, the FLSA requires most employees to receive the federal minimum wage and overtime pay for all hours worked over 40 in a workweek. These employees are considered “non-exempt” under the FLSA. However, the FLSA exempts certain limited categories of employees from the overtime requirement, including “white collar” executive, administrative and professional (EAP) employees.
Under the current FLSA rules, EAP employees are exempt from overtime and are not required to be paid time-and-a-half for hours worked over 40 in a workweek if they:
- Are compensated on a salary basis at a rate not less than $684 per week and
- Primarily perform specific duties that are considered exempt
On Aug. 30, 2023, the U.S. Department of Labor (DOL) released proposed rules that would raise the salary threshold required to qualify for the FLSA’s overtime exemption. Currently, the threshold to qualify for exempt status is $684 per week, which amounts to $33,568 per year. The proposed rule would increase the threshold by over 50% to $1,059 per week, or $55,068 per year.
The proposed rule also seeks to increase the annual salary threshold for the “highly compensated employees” exemption from $107,432 per year to $143,988 per year. Importantly, the proposed rule addresses only the salary test for these exemptions and does not change the duties test.
As part of the proposed rule, the DOL also seeks to automatically increase the minimum salary and highly compensated employee thresholds every three years, based on available wage data at the time. The intent is for the exemption to accurately reflect changing economic conditions in the future. The DOL has also indicated that the actual salary threshold in the proposed rule will be based on earnings data as of the date the final rule takes effect, which means that the new salary thresholds could be even higher by the time it is enacted than the amounts stated in the proposed rule.
Along with the proposed rule, the DOL released Frequently Asked Questions explaining the rule’s potential effects.
In the FAQs, the DOL estimates that, if the rule is enacted, an additional 3.4 million workers that are exempt under the current EAP exemption will become nonexempt in the first year.
Similarly, the DOL estimates that an additional 248,900 workers would become non-exempt by moving from the less demanding highly-compensated employee duties test to the more common and more demanding EAP “primary duty” test.
The proposed rule was subject to a 60-day comment period, which expired on Nov. 7, 2023. Now that the comment period has ended, the DOL will take the comments it received into account and likely publish a final rule sometime in 2024.
The final rule should become effective 60 days after it is published but the rule will likely be challenged in court. There have already been a number of cases in the past couple of years challenging the DOL’s authority to mandate a salary threshold for employees to satisfy in order to be exempt under the FLSA.
If the cases is taken up by the U.S. Supreme Court, those challenging the rule may find a receptive audience. Last year, during oral arguments on a similar issue, two Supreme Court justices questioned whether the DOL has such authority and Justice Brett Kavanaugh stated that there is “a strong argument that the [FLSA overtime] regulations [requiring a salary threshold] are inconsistent with the statute.”
Employers should keep an eye out for the DOL’s final rule and any challenges to the rule that are brought in court. Employers should also consider developing a plan for transitioning any currently exempt employees who do not meet the new salary minimums to non-exempt status.
A version of this commentary appears in the Jan. 8, 2024, print edition of Arkansas Business.
Shelby Shroff is a lawyer on Wright Lindsey Jennings’ labor and employment team in Little Rock. Her practice includes providing advice on employment law compliance and defending employment litigation.