New Fair Labor Standards Act Regulation Involving Overtime

On April 23, 2024, the Department of Labor (“DOL”) announced a new overtime regulation through a final rule that will go into effect for all employers on July 1, 2024, less than two months from now. The final rule significantly increases the current salary level that delineates which salaried workers are entitled to overtime pay protections under the Fair Labor Standards Act (“FLSA”). According to a DOL press release, the new overtime rule was developed after approximately 30 listening sessions across the country and following review of over 33,000 written comments.

As a refresher, under the FLSA, some workers are specifically exempt from the FLSA’s minimum wages and overtime protections pursuant to certain statutory exemptions, including the so-called “white collar exemptions” for bona fide executive, administrative, and professional employees. This exemption, commonly referred to as the “EAP” exemption, applies when all the following are met: (1) an employee is paid on a salary basis; (2) the salary is not less than a minimum salary threshold amount; and (3) the employee is primarily performing executive, administrative, or professional duties, as applicable. The final rule will drastically change the second element of this analysis.

Beginning on July 1, 2024, salaried workers who earn less than $844 per workweek ($43,888 per year) will become eligible for overtime pay at the rate of time-and-a-half for every hour worked over 40 in a workweek. This is up from the current salary threshold of $684 per workweek ($35,568 per year) established in 2019 during the Trump Administration and constitutes an increase of approximately 24%. Beginning on January 1, 2025, salaried workers who earn less than $1,128 per week ($58,656 per year) will become eligible for overtime pay, no matter whether they are in a job position that primarily requires the performance of executive, administrative, or professional duties under the FLSA. This increases the current salary threshold by over 65% by the beginning of next year, which is a significant jump in only a matter of months.

The DOL states that this new minimum salary level sets the threshold at the 35^th percentile of weekly wages for full-time, salaried workers in the lowest wages census region, which is currently the Southern United States. The final rule also implements automatic increases to the minimum threshold every three years beginning on July 1, 2027. Notably, the numbers reflected in the final rule are even higher than the thresholds the DOL published in its August 20, 2023 proposed rule.

Moreover, the new rule significantly changes the highly compensated employee exemption (“HCE”), which provides that a salaried worker who earns a high annual compensation and whose role includes one or more of the executive, administrative, or professional duties set forth in the FLSA is exempt from the overtime pay requirement. The current salary level to be classified as an HCE is $107,432 per year, including at least $684 per week paid on a salary or fee basis. Effective July 1, 2024, the new rule will raise the salary level for HCE’s to $132,964 per year, including at least $844 per week paid on a salary or fee basis. Thereafter, effective January 1, 2025, the new rule will raise the salary level for HCE’s to $151,164 per year, including at least $1,128 per week paid on a salary or fee basis.

As with the FTC’s blanket ban on non-compete agreements, it is expected that the DOL final rule regarding overtime will be subject to legal challenges. Some of the likely grounds for legal challenges include that: (1) the final rules places greater importance on the salary threshold than the duties portion of the EAP exemptions; (2) the DOL does not have the authority to enforce automatic increases to the salary threshold every three years without separate notices of proposed rulemaking; and (3) setting the salary threshold at the 35^th percentile of weekly wages, with another significant increase in six months, is extremely close to the 40^th percentile target figure in the final rule the Obama Administration had overturned by the United States District Court for the Eastern District of Texas in 2016 (by comparison, the current salary threshold is set at the 20^th percentile).

The final rule will literally affect millions of employees and thousands of employers. Although legal challenges are likely, employers should plan on coming into compliance with the new rule on or before July 1. Options for compliance strategies include, if necessary, raising the salary of workers who are currently classified as exempt, or reclassifying exempt employees as non-exempt. The latter could include restructuring work schedules so that workers who are currently classified as exempt will not work overtime hours once they are reclassified as exempt and could entail hiring additional workers to fill in the gaps.

Whatever the case, the final rule is sure to affect most employers in the United States. Employers should plan now to become compliant in the event that a legal challenge to the final rule is unsuccessful, including reviewing the necessary data related to their workforce (salaries, hours, and duties), ensuring that they have robust time recording policies to keep track of all hours worked, updating policies regarding advance approval of overtime, and training managers and supervisors regarding the requirements of the new rule.

Here is a link to the Department of Labor Blog announcing the final rule: https://blog.dol.gov/2024/04/23/what-the-new-overtime-rule-means-for-workers#:~:text=Starting%20July%201%2C%20most%20salaried,become%20eligible%20for%20overtime%20pay.

Our attorneys are ready to answer any questions as to the effect of the final rule on employers and recommendations to come into compliance with the rule.

Mark A. McNitzky

Mark McNitzky has significant experience providing both public and private clients with general advice, counsel, litigation representation in a broad range of employment and labor matters. Mark assists employers in all forms of compliance with local, state, and federal employment laws, including ...