In the closing months of the Trump administration, the U.S. Department of Labor pushed out a proposal to increase the salary threshold for exempt employees, raising the limit of the day from $23,660 to the current level of $35,568. By way of context, to be exempt from overtime under the Fair Labor Standards Act’s “white-collar” executive, administrative and professional exemptions, employees must be paid a salary of at least the threshold amount and meet certain duties tests. If they are paid less or do not meet the tests, they must be paid 1.5 times their regular hourly rate for hours worked in excess of 40 in a workweek. That proposal passed and came into law after considerable discussion and debate.
On August 30, 2023, the Department of Labor under the Biden administration proposed implementing a new threshold. If passed, that new threshold would be $55,068. Also, under the new proposal, a review and adjustment would come due every three years after the date the new threshold comes into effect. Furthermore, the Department of Labor has indicated that by the time the rule goes into effect, the threshold could go as high as $60,000, relying on inflation-based economic data gathered at the time of the effective date.
Stated in slightly different terms, the current threshold is $17.10 per hour. The new threshold would push that to $26.48 per hour. Should the rate hit $60,000, that equates to $28.85 per hour.
The implications for cannabis are not insignificant. Many jobs currently characterized as salaried exempt may be affected by such a change and may become eligible for overtime consideration. As we know, many roles in our industry can, and often do, operate more than 40 hours a week. Jobs in this zone of change could be among those roles, and because of this proposed change, could suddenly drive a greater cost of labor to the employer than ever before.
Even more important is the clause in the proposal that mandates a tri-annual review and adjustment. Traditionally, these adjustments are sporadic. Prior to the Trump administration, there had not been a change in the threshold for a number of years, and there has never been a reliable cadence. This proposal seeks to correct that, making it much more likely that changes would occur on a schedule. The inherent logic is that creating a routine around this process is more proactive and more manageable than waiting for the next round of inflation to drive wage growth.
For business owners, such a schedule also provides a reasonable basis for forecasting, and for periodic maintenance and updating of job categories. Best practice in job classification is exactly that periodic assessment; particularly in the high-speed evolution of today’s workplace, job duties, functions and responsibilities evolve quickly, and can lead to potentially significant changes in the nature of the work at your facility or store. By continuing to evaluate that work, as an employer or owner you stand the best chance of being ahead of potential shifts in the salary threshold, and reduce the chance of being caught off guard by any substantive changes that may occur.
There is time to get ahead of this before the proposal becomes the rule. The Department of Labor has indicated that a 60-day comment period will begin once the proposal is formally published in the federal register; this has not happened as yet. Once the 60-day period closes, the Department of Labor must review and address all substantive public comments received, then it will publish a final rule, likely with the current proposed version substantively intact. For additional context, when the Obama administration attempted a similar change in 2019, the Department of Labor received more than 300,000 comments.
Estimates vary as to how soon we can reasonably expect the rule to come into final form. Some legal sources have suggested a highly optimistic effective date of January 1, 2024. More realistic estimates suggest July 1, 2024, and assuming that there will be court challenges, I suggest that January 2025 may be more accurate. This not only seems more logical from a process perspective, but it would also certainly align with whatever lame-duck form Congress takes at that time.
As noted previously, employers would be wise to get ahead of this pending rulemaking, if only to operate in a best practice frame of mind. Employers should regularly review the classifications of the jobs in their organizations anyway, regardless of the proposed rules from the Department of Labor. In that review process, a subset of the best practice is to assume that all positions that could be considered “on the bubble” as to whether they should be classified as exempt or non-exempt, should most likely be characterized as the latter. Experience with the many state and federal regulatory agencies that address matters of employment suggests that this is generally the wiser and safer approach. In particular, if the tri-annual review process remains intact if and when the proposal becomes law, then employers will be tasked with doing this review every three years anyway; developing good practice around this work now rather than waiting until it becomes a fait accompli will serve the business in the long run.
The Department of Labor presents the image of being very committed to this proposal. Cannabis owners and leaders would do well to take that commitment seriously.
Terry Smith is a consultant in the cannabis industry and a senior leader in organizational development and change management. He has served as an adjunct professor in the School of Business Administration at Portland State University. He is a certified facilitator and coach through Korn Ferry, The Leadership Circle, Organizational Systems International and Achieve Global. He can be reached at pdxterryssmith@gmail.com.