DOL Final Rule Raising Salary Thresholds for Exempt Employees Goes into Effect July 1st: Are You Ready?

One of the biggest questions of the summer is whether one of a number of lawsuits filed across the country will put a temporary stop to the U.S. Department of Labor (DOL)’s final rule which is set to significantly raises the salary thresholds for exempt employees. The clock is ticking…loudly. Two of the lawsuits are in the Eastern District of Texas—where a similar 2016 rule was struck down. 

Barring court intervention, the final rule goes into effect on July 1, 2024, which doesn’t give employers too much time to reverse course. Here is a rundown of the changes which affect the "white collar" (executive, administrative, and professional (EAP) employees) and "highly compensated employee" (HCE) exemptions under the Fair Labor Standards Act (FLSA). They will have a substantial impact on employers and employees alike and force employers into increasing salaries or paying overtime. 

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Key Changes in the Final Rule

1. Standard Salary Level for "White Collar" (EAP) Exemptions: 
   • Effective July 1, 2024: The salary threshold jumps from $684 per week to $844 per week ($43,888 annually).
   • Effective January 1, 2025: The salary threshold will jump up to $1,128 per week ($58,656 annually).
2. Total Annual Compensation for HCE Exemption:
   • Effective July 1, 2024: The threshold for HCE employees is moving up from $107,432 to $132,964 annually.
   • Effective January 1, 2025: The threshold will rise to $151,164 annually.
3. Automatic Updates Every Three Years:
   • Starting July 1, 2027, the salary thresholds will be automatically updated every three years based on available wage data.

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Impact on Employers

The DOL estimates that the new rule will affect over 3 million currently exempt employees who may need to be reclassified as non-exempt and paid overtime, unless their salaries are increased to meet the new thresholds. Employers should take the following steps to prepare for compliance:

1. Conduct HR Audits: Identify employees affected by the new thresholds.
2. Salary Adjustments or Reclassification: Decide whether to increase salaries to maintain exempt status or reclassify employees as non-exempt.
3. Update Payroll Systems, Policies, and Procedures: Ensure systems and policies are updated to reflect the new salary thresholds.
4. Train HR & Management: Educate human resources staff and managers on the new requirements to ensure compliance and proper implementation.

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Legal Challenges

Lawsuits have already been filed but whether there will be an injunction to stop the rule from going into effect July 1^st is anyone’s guess. Business groups and some lawmakers argue that the DOL is overreaching and this rule will undermine flexible work arrangements and the gig economy. However, the DOL maintains that this rule aligns with the FLSA’s intent and judicial precedent. Officials are prepared to defend this rule against legal challenges, emphasizing that it promotes fair compensation and aligns with economic realities. Accordingly, employers should stay updated on any legal developments that may impact the implementation of this new rule.

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Conclusion

The DOL’s new final rule on salary thresholds for exempt employees represents a significant update in wage and hour compliance. Employers must act promptly to review and adjust their compensation strategies to comply with these changes. If you need assistance navigating these regulatory updates, our legal team is here to help.

For more information, you can visit the DOL’s website here: https://www.dol.gov/agencies/whd/overtime/rulemaking.

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