Article provided by VADA Program Partner SESCO Management Consultants
September 19, 2023
On August 30, the Department of Labor (DOL) issued a proposed rule regarding the Fair Labor Standards Act (FLSA) overtime exemptions, most notably increasing the required salary threshold for the “white-collar exemptions” from $684 per week ($35,568 per year) to $1,059 per week ($55,068 per year).
This federally proposed $20,000-plus increase in salaried workers’ eligibility for overtime is under a public comment period for 60 days, then SESCO expects the DOL will issue its final rule. We expect this new rule to take effect sometime in 2024. However, we also fully expect this new rule is likely to be challenged in court. The challenge will be similar as to when a federal court blocked the Obama administration’s attempt to raise the threshold in 2017.
Even though it is likely the proposed rule will be subject to judicial challenge, SESCO recommends that employers do not take a wait and see position. SESCO recommends the following proactive actions:
- Review current “white collar” exemption designations to not only ensure compliance with the FLSA exemptions.
- As the automotive retail profession can apply several special exemptions from overtime, by auditing pay plans ensure that you are taking advantage of these exemptions to include:
- Automotive Exemption 13(b)(10) – Overtime exemption for sales, parts, technicians and service writers (as defined).
- Retail 7(i) Commission Exemption – For those positions primarily paid by commission (51% or more of their earnings is derived by a commission system).
- Review all exempt compensation levels to determine those that may fall under the worst-case scenario threshold of $55,068 per year.
- Conduct a financial assessment (labor cost) on the impact of increasing salaries that are below the proposed $55,068.
- As most increases to the proposed salary threshold will be too costly, consider optional pay plans such as the Fluctuating Workweek (nonexempt salary plan with overtime at one-half the regular rate), commissioned pay plans or a combination thereof, or hourly rate with time and one-half over 40 hours worked in each workweek.
- Apply other federal partial exemptions from overtime that may be available.
- Should there be a conversion of any exempt employees to nonexempt, carefully strategize the tracking time, limiting work away from the office, financial impact of overtime, and most importantly, the communications process with those staff that may be affected.
- Whether or not there is an increase even up to the $55,068, this proposal shines the light on the need to develop a formal compensation program to ensure internal equity, external equity as well as compliance. As questions may arise from the news relating to this proposed increase, employers need to be able to answer the basic questions, with credibility, through an effective compensation system.
What SESCO does not recommend at this point is to make any hasty changes, promises or communicate with salaried exempt staff until if and when the salary threshold is increased.
Some key points from the legislation include:
- Increase the required salary threshold from $35,568 to $55,068 per year.
- The highly compensated total annual compensation threshold would be increased from $107,432 to $143,988 per year.
- Employers can still utilize up to 10% of the standard in bonuses and incentives to meet the required salary threshold.
- The existing white-collar duties tests would not change.
The proposed rule would include a new mechanism that would automatically increase the salary threshold every three (3) years.
In Summary
SESCO was founded in 1945 by an ex-Department of Labor, Wage-Hour Investigator. Our history is rooted in FLSA-Wage and Hour Accounting to include analyzing and applying the white-collar exemptions, assisting employers in understanding and complying with the Act, representing employers before federal and state DOL’s and in reviewing and designing effective compensation practices. Please contact SESCO as you have questions concerning this proposed legislation and certainly we will alert the Association and members on any developments.
We sincerely appreciate the opportunity to be endorsed by VADA. Contact SESCO at:
(423) 764-4127