Is another increase in the exempt salary threshold on its way?
In 2016, the U.S. Department of Labor sought to implement regulations to increase the salary threshold for the “white collar” exemptions from $455 to $913 per week. The regulations also called for the threshold to be updated every three years. The increase was scheduled to take place on December 1, 2016. We all remember what happened next. Human resources professionals and managers all across the country worked long hours to ensure their companies would be in compliance with the new regulations by transitioning workers who earned salaries of at least $455 per week, but less than $913 per week, from exempt to nonexempt status.
Less than two weeks before the regulations were to go into effect, a federal court granted a nationwide injunction to block the regulations. The court ruled that the DOL had exceeded its authority by more than doubling the salary threshold. Ultimately, the 2016 regulations never went into effect. Employers rejoiced. Employees mourned. Human resources professionals went to therapy.
In 2019, the DOL announced a final rule to increase the salary threshold to $684 per week ($35,568 per year). Notably, this final rule did not include a provision for automatic updates. Unlike its predecessor, this final rule became effective January 1, 2020. It has been estimated that this final rule caused more than one million workers to become eligible for overtime compensation.
Congress to debate recently introduced Restoring Overtime Pay Act of 2023
Now, Congress is getting into the action. On March 29, 2023, the “Restoring Overtime Pay Act of 2023” was introduced in Congress. The Act proposes to significantly increase the salary threshold for white collar exemptions, and calls for it to be updated on a yearly basis until 2026. Specifically, it calls for the following schedule of increases:
|Effective Date||New Salary Threshold|
|The date the Act takes effect||$45,000 per year|
|January 1, 2024||$55,000 per year|
|January 1, 2025||$65,000 per year|
|January 1, 2026||$75,000 per year|
|January 1, 2027||“an annualized amount that is equal to the rate of the 55th percentile of weekly earnings of full-time salaried workers nationally”|
To provide some perspective, it is estimated that 30% of full-time workers, regardless of if they are paid on a salary or hourly basis, earn less per year than the current threshold ($35,568). However, almost 70% of full-time workers earn less than $75,000 per year, which is what the threshold will be in 2026 if the Act is passed. The percentage of workers who earn less than $75,000 per year is expected to decrease between now and 2026 due to various economic factors. Nonetheless, these numbers demonstrate that if the Act is passed there will be millions of workers who will no longer meet the salary threshold, which means they will be entitled to overtime pay even if they are paid on a salary basis and satisfy the job duties tests.
As one can imagine, this issue is being hotly debated in and out of Washington. Advocates in favor of the Act argue that the current salary threshold is woefully out of date because, once you remove hourly employees, only about 15% of the salaried workforce is currently guaranteed overtime pay. On the other hand, business owners are expected to oppose the Act, arguing that increasing payroll makes it harder to operate their businesses.
Finally, the DOL is expected to propose another final rule to increase the salary threshold as early as this month.
While it is unclear how all of this will play out, it is clear that the DOL, workers advocacy groups, and members of Congress will continue to be aggressive in their quest to increase the salary threshold. Employers must be diligent in monitoring changes to the law and regularly reviewing their pay practices to ensure compliance with all state and federal wage and hour laws.