KHVPF Insight
Department of Labor Developments
The U.S. Department of Labor has been cranking out new rules in 2024. Of most significance is the DOL’s final rule raising the salary thresholds for the white-collar exemptions to overtime pay requirements under the Fair Labor Standards Act (“FLSA”).
As a general matter, to be considered exempt under the white-collar exemptions (also known as the “EAP” or executive, administrative or professional exemptions), an employee generally must (1) be paid on a salary basis, meaning a predetermined and fixed amount that is not subject to reduction because of variations in the quality or quantity of work performed; (2) be paid at least a specified weekly salary; and (3) perform executive, administrative, or professional duties, as defined under the DOL’s regulations. The DOL also provides an alternative exemption test for certain highly compensated employees (“HCEs”) who are paid a salary, earn at least a specified total annual compensation level, and satisfy a scaled down form of the duties test.
As of July 1, 2024, the DOL has increased the EAP amount to $844 per week from $684 per week, citing the rapid growth in wages since the last increase in January 2020. The DOL has increased the HCE threshold to $132,964 per year, up from $107,432. These rates will adjust again in January 2024 to $1,128 per week for the EAP exemptions and $151,164 for HCEs. And under the final rule, the rates will be revised every three years starting July 1, 2027, to reflect updated earnings data.
The DOL estimates that in the first year, this change will result in over four million workers becoming eligible for overtime under the EAP exemptions because their current weekly salaries are below the new threshold. Employers must evaluate what action to take with respect to employees who are currently exempt, but who do not meet the new salary threshold. Employers generally will be required to either increase the employees’ salary level to maintain the exemption or reclassify the employees as non-exempt and pay them time-and-a-half for all hours over 40 in a workweek. This is not always a simple task. Employers also must make sure they are complying with any state laws that provide more protection for employees than the FLSA and adhering to any notification, bargaining, or other obligations where the employees are represented.
While there is a possibility that litigation may block these new regulations, one Texas federal court has already enjoined the rule from taking effect against the State of Texas as an employer. As of now, employers should be complying with the new rule. Employers should watch this issue carefully and consult with employment counsel regarding steps to take to ensure compliance with the new rule.
The DOL has issued several other rules and bulletins in 2024, including (1) changing how independent contractors are classified under the FLSA; (2) clarifying rules regarding OSHA workplace inspections; and (3) addressing the use of AI and automated systems for legal compliance with FLSA requirements. Employers should not hesitate to consult with a KHVPF attorney regarding compliance with any of these new rules and bulletins that apply to them.