Labor Department Proposes Substantial Changes to White-Collar Salary Thresholds

Are you a Startup Business in the technology or life science industry in the Triangle? Be aware that salary increases may soon be required to maintain the status of exempt employees! 

Background  

On August 30, 2023, the U.S. Department of Labor (“DOL”) released and has now published a Notice of Proposed Rulemaking (NPRM), Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees. If implemented, this would update and revise the regulations issued under Section 13(a) of the Fair Labors Standard Act (“FLSA”) and it would require an increase to the salary paid to certain employees to maintain exempt status. 

This will impact startups based in the Triangle and RTP significantly. Startup businesses tend to award significant equity in lieu of a higher salary. It is important for Raleigh, Chapel Hill, and other startup businesses throughout RTP and beyond to be aware this may be coming. 

Overtime Requirements and Exempt Employees

Under federal labor law, non-exempt employees in the United States must be paid at least federal minimum wage for all hours worked and must be paid overtime for all hours worked over forty in a workweek at the rate of one-and-one half the regular rate of pay for all hours worked over 40 hours in a workweek (i..e, “time and a half”). 

To qualify for an exemption from the overtime rule, thereby becoming an “exempt employee,” certain requirements must be met. The current proposal to modify the FLSA will impact employees who fall within the Highly Compensated Employee exemption as well as employees who fall within the administrative and professional exemptions. Additional information on these exemptions has been published on the Department of Labor’s website and can be accessed here. 

Updates to Required Salary Level

• Administrative and Professional Exemptions: The DOL has proposed raising the standard weekly salary level for employees classified as exempt under the administrative and professional exemption from $684 per week to $1,059 per week; 
• Highly Compensated Employee Exemption: The DOL has proposed raising the salary level for employees classified as Highly Compensated Employees from $107,432 per year to  $143,998; and 
• Automatic Revisions: The DOL has also proposed automatically increasing the salary thresholds every three years based on a proposed formula.

Summary of Some Key Takeaways:

• Release Date: August 30, 2023
• Current Weekly Salary Threshold: $684 per week 
• Proposed Weekly Salary Threshold: $1,059 per week 
• Current HCE Annual Salary Threshold: $107,432
• Proposed HCE Annual Salary Threshold: $143,988
• Automatic Update: Every three years, based on recent wage data
• New Territorial Applications: Inclusion of Puerto Rico, Guam, U.S. Virgin Islands, and Northern Mariana Islands when apply the salary level for EAP exemptions. 
• Employer Strategy:  Take a proactive approach now to conduct a salary audit to determine the impact on your current budget if salary increases are required. 
• Potential Effective Date: Around July 1, 2024

Review Your FLSA Compliance Today

If you are a business or an employee in Raleigh, Durham, or Chapel Hill, it is essential to consider a salary audit now. If you need help reviewing your current exempt or non-exempt employee classifications, are confused about whether these apply to you, or need help preparing for potential salary increases under the proposed rule, please reach out to Hammer Law PLLC. Our law firm is here to help startups, businesses and employers with employment law compliance.