Department of Labor’s New Salary Rate Exemption Threshold Is Coming Soon, Probably….

On the heels of issuing a new rule on March 11, 2024, providing a stricter interpretation of classifying workers as Independent Contractors, the Department of Labor (DOL) is likely to issue its other new rule increasing the “white collar” Salary Rate Exemption threshold in the near future. This new rule has been “on the radar” of HR (People and Culture) Professionals and many business owners for almost 2 years.  Most assessments I have read believe this new rule will likely be finalized in April 2024.

What will the impact of this new DOL rule be?

The current Salary Rate Exemption threshold for exempt employees is $684 a week ($35,568 annualized) for the administrative, executive, and professional exemptions — collectively known as the “white-collar” exemptions. The DOL’s proposal, if finalized in its current form, would initially raise the salary rate threshold to $1,059 a week ($55,068 annualized). The impact would be that even if the employee’s role meets the “duties” test for one of the “white-collar” exemptions, but their earnings do not exceed the new threshold, they would still be eligible for overtime earnings (1.5x regular rate of pay) for any work hours exceeding 40 during a work week.  The proposed rule would also automatically update the salary rate threshold every three years, based on the available wage data in those future years.

What will this new DOL rule not impact?

The new rule does not propose any changes to the current standard duties test for the administrative, executive, and professional exemptions.  Although no changes are proposed to these “white-collar” duties tests, the heightened awareness stemming from  issuance of a new rule will likely shine a bright light on positions classified as salary exempt, especially those currently below or slightly above the new threshold.

If the new rule is finalized in April, when will it be effective?

Similarly to the legal challenges being mounted on  the recent changes in classification of Independent Contractors, the final rule increasing the “white-collar” exemption salary rate threshold will likely also face legal challenges. However,  employers cannot and should not count on these challenges being successful to ultimately halt the implementation of this new rule. Typically, when establishing a final new rule effective date, the actual DOL enforcement date of a new rule will usually be several months later.

What actions should I be prepared to take or take now?

As noted above, besides meeting the salary rate threshold test, exempt classified employees also need to satisfy certain duties requirements tests. Neither their job title nor job description alone determines whether an employee qualifies for a white-collar (or any other) exemption. This is a good opportunity to ensure they meet these standards as well.  The DOL’s announcement of a new rule will, if nothing else,  create an increased level of scrutiny by workers who would likely  be impacted by the new rule.  Regardless of the legal fate of a new ruling, employers should be proactive in their assessment of their worker classifications under both the prior and new DOL rules.

Thus, if not already doing so, employers should closely review their classification decisions on any Independent Contractor arrangements, along with any employees classified as exempt with a salary currently below or around the salary rate threshold of the proposed new rule.  In addition, employers should also  review and affirm their exemption classification decisions for certain employees above the new threshold, if there are any questions about the clarity of their role meeting one of the “white collar” exemption classification “duties” tests.

Aliniti HR Blog – The Department of Labor’s New Salary Exemption Threshold Is Coming Soon, Probably is intended as an employer reference guide only and not intended to serve as legal advice, therefore any legal questions should be directed to legal counsel.