Here we go again — maybe. On April 23, the U.S. Department of Labor announced a final rule that — if it sticks this time — will increase the standard salary threshold for overtime exemptions, thereby extending overtime protections to millions of workers if their current salaries are not raised. The final rule will also increase the threshold of a highly compensated employee's total amount of compensation.
The final rule increases the salary threshold for salaried exempt workers — principally those covered by the executive, professional and administrative exemptions — by roughly $20,000. This jump, however, will not happen overnight; instead, it will occur in two steps. First, beginning on July 1, 2024, the salary threshold increases from $35,568 to $43,388. Next, on Jan. 1, 2025, the salary threshold increases from $43,388 to $58,656. The increase in the compensation threshold for highly compensated employees — which applies regardless of job duties — mirrors this process by going from $107,432 to $132,964 and then to $151,164. Starting July 1, 2027, these thresholds will be updated automatically every three years to reflect current earnings data. Employees earning less than these thresholds will become entitled to earn overtime pay.
Yet there is no guarantee that this rule will actually take effect. In 2016, the DOL attempted to increase the salary threshold for the overtime exemption to $47,476. The 2016 rule was enjoined and never went into effect. This new final rule seeks to substantially increase the same threshold to $58,656, or $11,180 more than the previously enjoined rule. The rule will likely face challenges in court, and it could be in jeopardy if there is a new presidential administration after the November 2024 election. Thus, it is unclear whether this new rule will suffer the same fate as its predecessor.
Given this ambiguity, employers may want to refrain from implementing any sweeping changes to their pay practices in response to this rule today, but they should not ignore it or consider its fate sealed. To be proactive, employers should evaluate the effect of the new rule on their pay practices now.
Practical Tips for Private Employers
Steps employers can take now in preparation and under the assumption that the rule will become effective:
- Determine how many salaried exempt employees are paid at or below the new thresholds.
- Estimate the number of hours these employees work within a typical week.
- Calculate the potential costs associated with:
- Converting salaries under the new thresholds to hourly rates and paying overtime for weekly hours worked in excess of 40 hours; or
- Increasing salaries to meet or exceed the new thresholds to maintain exempt status.
- Consult with legal counsel to ensure that:
- State and local requirements have been considered; and
- All jobs have been properly evaluated not just for salary thresholds but for functional qualification for overtime exemption. (Remember, salary is only part of the test when analyzing exemptions.)
In sum, while it is not clear that the final rule will take effect, or do so on the DOL’s current schedule, it is advisable for employers to consider this regulation's effect on their workforce now and develop business strategies for compliance.
