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Employers Face Coming Deadlines on Raising Salary Levels for Overtime Exemption

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The U.S. Department of Labor (DOL) announced a final rule to take effect on July 1, 2024, raising the salary levels necessary for the so-called "white collar" overtime exemptions.  The exemption pertains to "executive, administrative, and professional" employees, and uses a three-part test that requires an employee to be salaried, make more than a certain amount per year, and have certain job duties in order to be exempt from time and a half overtime.  The new rule's first change in the salary threshold will take effect on July 1, 2024, and at that point, workers must make at least $43,888.00 per year to meet the salary part of the requirements, from the present $35,568.00 minimum.  The next change will occur just six months later, on January 1, 2025, when the salary threshold will increase to $58,656.00.  Automatic three-year salary updates will take place starting July 1, 2027.  

The final rule exceeds the levels proposed by the Obama Administration in its 2016 rule to raise the salary level threshold to $47,000.00 per year.  Before that rule could take effect, however, a Texas federal court invalidated the rule.  Some believe that the new rule has the same problems as the 2016 Obama Rule, with the potential for the new rule to be invalidated as well.  The Biden Administration did take some steps to differentiate the new rule from the Obama rule, relying on a slightly different methodology.

Some employers may delay in making adjustments until the last minute, since the Obama 2016 rule was blocked by the federal courts only eight days before it was to go into effect, after many employers had already implemented the required salary changes.  Further, salary level changes can impact other salaried individuals' ability to maintain pay differentials.  

In addition to timing, employers face numerous issues as to strategy, beginning with the timing issue noted above.  Some considerations are whether to increase salaries to meet the new salary threshold; classify employees with lower salaries as non-exempt, overtime-eligible employees; make necessary staffing adjustments to avoid overtime, or considerations of converting to a different type of overtime payment known as "fixed pay for fluctuating hours."  The latter arrangement is one in which the salary covers all hours worked, so that only an additional half-time is necessary to meet the overtime requirement, rather than time and a half. 

Since employees like to be considered as on salary, any adjustments must be communicated in the best manner to avoid disruption.  For newly non-exempt employees, special attention must be given to recordkeeping requirements, such as for off-duty phone calls, emails, texting and the like.  If there is a conversion to non-exempt status, employers will likely consider adjusting pay levels so as to equalize and consider the expected overtime as part of earnings.  There may be situations where some personnel in the same position meet the new salary threshold while others do not, so some may get salary adjustments but not others. Larry Stine of our office will be hosting a webinar titled "Strategy for Meeting the New White-Collar Overtime Exemption Requirements" on Friday, July 12, 2024.  If you would like to sign up, click here.

This article is part of our June 2024 Newsletter. 

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