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© 2023 American Payroll Institute, Inc. DOL Salary Threshold Proposal for ‘White Collar’ Exemption Will Impact States If Finalized On September 8, 2023, a notice of proposed rulemaking issued by the U.S. Department of Labor was published in the Federal Register [88 F.R. 62152, 9-8-23]. The proposal would increase the minimum salary level for the federal Fair Labor Standards Act (FLSA) “white collar” exemptions from $684 to $1,059 per week (or from $35,568 per year to $55,068 per year). The proposed required amount of compensation per week may be translated into equivalent amounts for periods longer than one week. The proposed requirement would be met if the employee is compensated biweekly on a salary basis of $2,118, semimonthly on a salary basis of $2,295, or monthly on a salary basis of $4,589. However, the shortest period of payment to meet this proposed compensation requirement is one week. If the rule is finalized, the new threshold will have a major impact on state overtime laws. Other provisions in the NPRM In addition to increasing the minimum salary level to $1,059 a week, the proposed rule would: • Increase the salary requirement for highly compensated employees (HCEs) from $107,432 to $143,988 per year (the equivalent of the 85th percentile of weekly earnings of full- time salaried workers nationally). • Return the salary level in the four U.S. territories subject to the federal minimum wage – Puerto Rico, Guam, the U.S. Virgin Islands, and the Commonwealth of the Northern Mariana Islands (CNMI) – to apply the same standard salary level as the rest of the United States. • Update the special salary levels for American Samoa to $890 per week (the equivalent of 84% of the standard salary level). • Update the special weekly base rate for the motion picture industry to $1,617 per week (or a proportionate amount based on the number of days worked). • Propose a new mechanism to automatically update the standard salary level and the HCE total annual compensation threshold every three years. The DOL proposes to increase the standard salary level to match the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region (currently the South). Items that did not change The DOL pointed out a few items that it did not change from current FLSA regulations. These include: Duties test. The NPRM did not propose any changes to the duties test. The DOL said that at this time, the agency “favors keeping the current duties test and concludes that, paired with an appropriate salary level requirement, the test can appropriately distinguish bona fide [executive, administrative, or professional] EAP employees from nonexempt workers.” Bonuses. The NPRM does not propose any changes to how bonuses are counted toward the salary level requirement. If the salary level is finalized as proposed, employers could still satisfy up to 10% of the salary level ($105.90 per week under this proposed rule) through the payment of nondiscretionary bonuses and incentive pay (including commissions) paid annually or more frequently. Impact on states There are 17 states with no general overtime pay provisions. Employers covered by the FLSA (through either employer or individual employee coverage) in these states must follow the federal overtime pay requirements, including the new salary threshold for white collar exemptions. This category includes: Alabama, Arizona, Delaware, Florida, Georgia, Idaho, Louisiana, Mississippi, Nebraska, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, and Wyoming. There are also 14 states that either rely on or directly refer to the overtime definitions found in the FLSA: Arkansas, District of Columbia, Indiana, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Missouri, Nevada, New Hampshire, North Carolina, Ohio, and Rhode Island. In addition to the categories listed above, there are 20 states that have their own overtime rules to consider in addition to the federal rules. States in this category include: Alaska, California, Colorado, Connecticut, Hawaii, Illinois, Iowa, Maine, Minnesota, Montana, New Jersey, New Mexico, New York, North Dakota, Oregon, Pennsylvania, Vermont, Washington, West Virginia, and Wisconsin. Where state law requirements are less favorable to an employee than the requirements in the FLSA, they apply only to employees who are not covered by the FLSA. Where the state requirements are more favorable to an employee than the FLSA, they apply to all employees covered by the state law, even if they are also covered by the FLSA. Currently, Alaska, Colorado, Connecticut, Hawaii, Illinois, Iowa, Maine, Minnesota, Montana, New Jersey, New Mexico, North Dakota, Oregon, Pennsylvania, Vermont, West Virginia, and Wisconsin have no salary threshold or lower salary thresholds than the federal proposal and they would therefore be required to follow the new federal requirements. More information The latest information on the white collar exemptions and other payroll topics is available on the PayrollOrg website in the Hot Topics section under the Compliance tab. September 18, 2023 Volume 25 Issue 18