On September 8, 2023, the federal Department of Labor (DOL) announced the release of its “proposed” rule to increase the minimum salary required for certain employees to be classified as exempt from minimum wage and overtime, which included the publication of a Notice of Proposed Rulemaking (NPRM), Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees. While we don’t usually report on proposed rules because they have a tendency to change—and often the effective date is distant and unknown—we wanted to provide some information given the potential significance of this rule.
Given the potential significance of this rule, we wanted to provide some information even though it is only a “proposed” rule:
- Currently, executive, administrative, and professional employees must be paid at least $684 per week ($35,568 per year) to be properly classified as exempt. This grouping of exemptions is often referred to collectively as “EAP.” The “proposed” rule, if adopted as-is, would increase the salary threshold to require that EAP employees be paid at least $1,059 per week ($55,068 per year) to be classified as exempt.
- Presently, employees who are exempt under the highly compensated employee (HCE) exemption, which has its own specific criteria, must be paid at least $107,432 per year. The “proposed” rule, if adopted as-is, would increase this amount to require that HCE employees be paid at least $143,988 per year to be classified as exempt.
- Lastly, the “proposed” rule, if adopted in its current form, would implement automatic updates to the EAP salary level and HCE total annual compensation requirement every three years.
Impacts
While it may be a bit early to start thinking about the impacts of this rule change, employers that want to maximize planning time should consider the following:
- You may need to reclassify many employees as nonexempt—this will bring the expected administrative hassle. This will include training these employees in the ways of nonexempt (e.g., they’ll need to log their time, take lunches and breaks, and observe your overtime policies).
- If you have exempt employees who make well below the “proposed” minimum salary (and therefore won’t be getting a raise to bring them up to the new threshold), and they’re regularly working more than 40 hours per week, overtime pay will need to be budgeted.
- If paying overtime is not desirable, you may need to redistribute work, find other efficiencies, or potentially alter aspects of your business.
As is mandated, if a state law requires higher minimum salaries than what is or will be required by the federal rule, the state minimums must be followed.
Resourcing Edge will provide additional information as it becomes available.
