Employer Alert: Proposed Change to Salary Basis for Exempt Employees – Comment Period Closing

If you have any employees who are classified as exempt, now is the time to pay attention to the proposed change to the salary basis of the Fair Labor Standards Act (“FLSA”). Link to USDOL Final Rule. Small businesses sometimes believe erroneously that they are not covered by the FLSA. However, please do not assume your business is not covered by the FLSA. Instead, consult with employment law counsel to find out whether your business is covered. If your assumption about coverage was incorrect, it could result in a costly mistake.

Currently, an employee can only be classified as exempt under the administrative, executive, or professional exemptions if they are paid on a salary basis at a rate no less than $684 per week/$35,568 annually. The proposed change will increase the salary basis from $684 per week to $1,059 per week/$55,068. Please note that the salary basis for the highly compensated employee would also increase from $107,432 annually to $143,988.

The proposed change is in the rule making process. On November 7, 2023, the public comment period will close. Once the public comment period closes, the comments will be reviewed, and changes could be made to the original amount of the proposed change to the salary basis. Regardless, it appears that some level of increase to the salary basis will be made and could come into effect as soon as early 2024.

Now is the time for employers to look at the salary amounts paid to their exempt employees. Assuming that the change will be an increase to $1,059 per week, ensure that your exempt employees are receiving at least that amount. If they are not, then they will not meet the exemption when the change goes into effect and will be entitled to overtime, for any time worked over 40 hours in a work week. One option for exempt employees making less than $1,059 per week is to increase their pay so that they meet the new salary basis. By doing so, they will continue to meet the exemption (assuming their duties also meet the requirements of the relevant exemption). If increasing a currently-exempt employee’s pay to meet the anticipated salary basis threshold is not an option, you might also consider changing them from being paid on a salary basis to an hourly basis due to New Hampshire’s specific final pay laws related to salaried employees.

Keep in mind that the analysis as to whether an employee meets an exemption from minimum wage and overtime under the FLSA is fact-specific and the amount that they are paid on a salary basis is just one factor that must be met. Again, now is the time to do this analysis and have a plan in place, rather than waiting until the rule is implemented and being forced to adapt rapidly to these changes under pressure.

P|K Tuned-In provides general legal information, not legal advice.  You should consult your attorney for guidance specific to your particular situation.