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The United States Department of Labor (DOL) announced new minimum wage and overtime pay requirements for executive, administrative, and professional employees under the Fair Labor Standards Act (FLSA) that partially went into effect July 1, 2024. Expected to impact upward of 4 million workers across the United States, the rule increases the salary standard for minimum wage and for when overtime kicks in. 

The rule is not without its critics: A lawsuit was filed in late May – and press time, has not been decided – that challenges the federal guidance.  The lawsuit, Plano Chamber of Commerce v. U.S. Department of Labor, filed in the U.S. District Court for the Eastern District of Texas, challenges whether the DOL has the authority to increase minimum salary thresholds.  While the lawsuit works its way through the court system, it’s important for employers to review their compensation policies and job descriptions to ensure compliance, should the DOL prevail and the rule remain in effect.

Background

The rule involves an employer’s classification of an employee as “exempt,” meaning not subject to minimum wage and overtime pay requirements under the FLSA, and “non-exempt,” meaning subject to the minimum wage and overtime requirements. Employees are generally exempt from the FLSA’s minimum wage and overtime protections when they are paid a requisite weekly amount on a salary basis while primarily performing executive, administrative, or professional (EAP) duties, as defined by the DOL. The final rule adjusts the current standard salary threshold levels for the EAP exemptions and highly compensated employees (HCEs). 

Overview of proposed changes

The final rule takes a tiered approach to increasing the salary threshold requirements. Effective July 1, 2024, the final rule increases the minimum salary required for an employee to qualify for exemption (the salary threshold) from the currently enforced level of $684 per week (equivalent to $35,568 annually) to $844 per week (equivalent to $43,888 annually). It also increases the total annual compensation requirement for HCEs from the currently enforced level of $107,432 to $132,964 per year.

After January 1, 2025, the threshold goes up again to a minimum salary required for an employee to qualify for exemption (the salary threshold) to $1,128 per week (equivalent to $58,656 annually), while also increasing the total annual compensation requirement for HCEs from $132,964 per year to $151,164 per year.

The final rule further commits to periodic review to update the salary threshold every three years.

Employer response

The impact of this final rule is significant for employers and employees alike. In the first year alone, the DOL estimates that the final rule will impose approximately $1.4 billion of direct costs on employers. This will impact 4 million exempt workers, who will become newly entitled to overtime protections under the FLSA without an intervening act by their employers.

Even with these changes, it is important to remember that meeting the salary thresholds in the final rule does not automatically exempt an employee from overtime pay. The employee’s duties must also primarily involve executive, administrative, or professional responsibilities, as defined by the FLSA. The final rule does not include changes to the job duties test. 

In anticipation of this month’s deadline and the subsequent January 1, 2025, increase, employers should review and audit their compensation, job descriptions, and job duties for current exempt and non-exempt employees to ensure compliance with the final rule.  While the pending lawsuit may ultimately halt the implication of the final rule, employers should prepare as if the increases will go into effect. Employment counsel can assist employers in developing a strategy that addresses the evolving guidance and navigating these changes with solutions that benefit both businesses and their workforces.

Hannah D. Stetson is a shareholder with Turner Padget Graham & Laney PA. You can reach her at 803-227-4240 or [email protected].