Here we go again! On August 30, 2023, the U.S. Department of Labor (DOL) announced a proposed rule to raise the minimum salary threshold requirement for employees to be exempt from minimum wage and overtime provisions under the Fair Labor Standards Act (FLSA). You may recall my 2016 blog post when the DOL issued a final rule that was later challenged in the courts and withdrawn. The proposed increase will increase the current salary threshold of $35,568 ($684 per week) to $55,068 per year ($1,059 per week) for certain executive, administrative, and professional employees. The DOL also intends to raise the salary threshold for the “highly compensated” employee exemption from $107,432 to $143,988 per year. The DOL’s proposed rule also includes a provision that would establish automatic updates to the salary thresholds every three (3) years based on earnings data.
The proposed rule does not make any changes to two components of the three-pronged criteria that determine whether an employee is excluded from FLSA’s minimum wage and overtime requirements. The first prong, known as the salary basis test, mandates that an employee must receive a fixed salary that remains unaffected by variations in quality or quantity of their work. The second prong, the duties test, requires that the employee’s job duties must involve executive, administrative, or professional duties as defined by the FLSA. The third component, which is the focus of the DOL’s proposed rule, is the salary level test which requires a specific minimum threshold.
It’s important to note that most Minnesota employers are subject to both state and federal wage laws. While federal laws, like the FLSA, allow exemptions for certain positions, Minnesota doesn’t recognize some of them, such as the computer professional and “highly compensated” employee exemptions.
What Should Employers Do?
If you haven’t done an internal audit of your pay practices, it is always a good time to do so. Employers could increase salaries to maintain exempt status (so long as all the other factors are met) or transition employees to non-exempt status and pay hourly plus overtime (or salary plus overtime). Employers needing to reclassify employees can then set policies that restrict or prohibit overtime. If an employee does work beyond their set hours, they must still be compensated, but disciplinary actions may be taken against them for violating company policy.
The public will have until November 7, 2023 to submit comments to the DOL on the proposed rule (meaning it is not likely to go into effect in 2023).