Thursday, August 31, 2023

DOL announced proposed rule to increase salary threshold for white-collar exempt employees

$1,059 per week. If the Department of Labor gets its wish, that amount will become the new salary threshold for its various white-collar overtime exemptions. Yesterday, the DOL published a notice of proposed rulemaking seeking to increase the FLSA's salary test from the current threshold of $684 per week ($35,568 annually) to $1,059 per week ($55,068 annually).

You will read a lot over the next couple of months that the DOL increasing its white-collar salary threshold by nearly 55% is a huge deal. I'm here to tell you that it really isn't.

Why? Because for an employee to qualify as exempt, he or she still must meet one of the various white-collar duties tests.
  • Administrative: The employee's primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers, and which includes the exercise of discretion and independent judgment with respect to matters of significance.
  • Professional: the employee's primary duty must be the performance of work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction, which work is predominantly intellectual in character and which includes the consistent exercise of discretion and judgment.
  • Executive: The employee's primary duty must be the management of the enterprise or a customarily recognized department or subdivision of the enterprise, in which the employee customarily and regularly directs the work of at least two or more other full-time employees, and the employee has the authority to hire or fire other employees (or the employee's suggestions and recommendations as to such are given particular weight).

If you're paying someone with whom you vest this level of discretion and judgment in your business an annual salary less than $55,000 (which is only the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region), either you are grossly underpaying them or they really aren't all that indispensable to your business (and therefore fail the duties test and aren't exempt anyway).

The classification of your exempt employees is most definitely an issue to which you should be paying attention, but from the perspective of whether they truly meet the narrow duties tests, and not whether you pay them enough to hit a particular salary threshold. Whether that minimum salary is $684 per week or $1,059 per week, if you truly vest your exempt employees with the level of discretion and judgment necessary to meet the duties test, you should already be paying them enough to meet the salary test, too.