According to its Fall 2022 Regulatory Agenda, the Department of Labor/Wage and Hour Division (the (“Department”) anticipates new proposed overtime rules will be released in May 2023. The agenda discusses that the Department is currently reviewing the implementing federal regulations regarding the white-collar exemptions under the FLSA’s minimum wage and overtime requirements, for bona fide executive, administrative, and professional employees. A primary goal of the new proposed rulemaking would be to update and increase the salary level requirement, which is a requirement to meet any of the exemptions previously mentioned. The current salary level requirement for employees to be exempt from both minimum wage and overtime for employees employed as bona fide executive, administrative, and professional employees is $684.00 per week.
What are the FLSA white-collar exemptions?
Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional and outside sales employees*. The exemptions apply only to white-collar employees who satisfy both the salary basis* and duties requirements prescribed by the regulations. It does not apply to “blue-collar” positions which typically feature manual labor, physical skill, and repetitive operations requiring use of the hands.
The current salary level requirement for employees to be exempt from both minimum wage and overtime for employees employed as bona fide executive, administrative, and professional employees is $684.00 per week. *The salary basis requirements do not apply to outside sales employees.
The salary level requirement was last updated in 2020 to its current level of $684.00 per week. Prior to that, the last time the Department had set the salary level basis was in 2004 at $455.00 per week. Per the agenda, and as a rationale for the Department’s proposed rulemaking, the Department asserts that, “[r]egular updates promote greater stability, avoid disruptive salary level increases that can result from lengthy gaps between updates and provide appropriate wage protection.”
What should employers expect?
When the notice of proposed rulemaking is released in May, there will be an opportunity for public comment before the rules are finalized and go into effect. The amount of the salary increase anticipated for May is unknown, but looking at recent history could provide employers with an indication of what to expect.
In 2016 under then President Obama, the Department of Labor issued a final rule raising the salary level from $455.00 per week to $913.00 per week, and also incorporated automatic increases every three (3) years indexed to inflation or wage growth. The rule was challenged however by a number of businesses, trade organizations and several states, with all cases being consolidated in the U.S. District Court for the Eastern District of Texas. Ultimately in August 2017, the Court declared the overtime rules invalid.
Employers should review their pay practices in advance of the Department’s anticipated May rule release, including being prepared for a potential increase in line with the Department’s previous attempt under President Obama.