Client Alert: Increased Federal Overtime Eligibility Effective July 1, 2024 – Part One
On April 23, 2024, the U.S. Department of Labor adopted a Final Rule (“Rule”) aimed at expanding overtime eligibility for certain employees under the federal Fair Labor Standards Act (“FLSA”). Currently, employers are required to pay overtime to employees who work more than 40 hours per week unless they are exempt.[1]
The Rule, which will take effect on July 1, 2024, raises the minimum salary thresholds that an employee’s wages must meet to be exempt from FLSA overtime requirements. However, with multiple legal challenges underway, we are still waiting to see if the Rule will be implemented next month.
The FLSA exempts several categories of employees from the overtime requirement, including so-called “white-collar” employees in the executive, administrative, and professional (“EAP”) categories, as well as outside sales and certain computer employees. For such an employee to be classified as exempt from payment of overtime, the employee must be paid at a specific salary level and must meet legally specified duties tests under both state and federal law.
What Does the New Rule Require?
The Rule raises the current salary thresholds in two ways:
- The Rule raises the minimum salary required for employees in the EAP categories as follows:
- Beginning July 1, 2024, the Rule raises the minimum annual salary from $35,568 per year ($684 per week) to $43,888 per year ($844 per week), and then to $58,656 per year ($1,128 per week) starting January 1, 2025.
- The minimum salary threshold will be calculated again in 2027, and then recalculated every three years.
- Though not applicable to most employers in Wisconsin,[2] the Rule also raises the total annual compensation requirement for highly compensated employees.
- Beginning July 1, 2024, the total annual compensation required for the highly compensated employee exemption increases from $107,432 per year to $132,964, and then to $151,164 per year starting January 1, 2025.
- The total annual compensation threshold for highly compensated employees will be calculated again in 2027, and then recalculated every three years.
Many currently exempt employees are expected to fall outside of the exemptions when the Rule takes effect on July 1, 2024. The Department of Labor projects that in the first year, the Rule will impose approximately $1.4 billion of direct costs on employers, including $451.6 million in regulatory familiarization costs, $299.1 million in adjustment costs, and $685.5 million in managerial costs.[3]
Barring a successful legal challenge, employers will be required to pay some currently exempt employees higher salaries, or reclassify them as nonexempt and eligible for overtime pay.
What Legal Challenges Does the Rule Face?
Multiple lawsuits have already been filed in the United States District Court for the Eastern District of Texas.
On May 21, 2024, several businesses and industry groups filed a suit challenging the Rule as exceeding the Department of Labor’s authority.[4] Subsequently, on June 3, 2024, the Texas Attorney General filed a separate suit in the same court seeking an injunction to delay the Rule’s implementation.[5] A hearing on the Attorney General’s motion is scheduled for June 24, 2024. If granted, a preliminary injunction could delay the Rule’s effective date and postpone its implementation until further legal resolution.
In an additional effort to block the Rule from taking effect, congressional lawmakers introduced a resolution under the Congressional Review Act on June 5, 2024. This Act allows Congress to overturn agency rulemaking action through a resolution. For the resolution to take effect, it must be approved by Congress and then signed by the President.
Absent the issuance of a preliminary injunction delaying the effective date, the Rule will go into effect on July 1, 2024. If employees do not meet the new salary thresholds on and after July 1, they will no longer meet the requirements for exempt status and must be paid overtime. If an employee already earns more than the new thresholds, the Rule does not impact the employee’s status.
In part two, we will discuss what employers can do now to prepare for the Rule once it goes into effect. If you have questions about the Rule or need assistance complying with the Rule, please contact Attorney Rebecca Kent or Attorney Jacquelyn Adamicki.
Resources
The Department of Labor provided several resources, including:
- Frequently Asked Questions;
- Chart of earnings thresholds for EAP employees
- Press Release; and
- Final Rule (Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees)
[1] See 29 U.S.C. § 206(a), 207(a).
[2] The State of Wisconsin does not recognize the HCE exemption, so it is not applicable to Wisconsin employees.
[3] 89 Fed. Reg. 32842, 32940 (Apr. 26, 2024) (to be codified at 29 C.F.R. 541).
[4] Plano Chamber of Commerce et al. v. Julie Su, Acting Secretary, Dep’t of Labor et al., Case No. 4:24-cv-00468 (05/22/24).
[5] State of Texas v. Dep’t of Labor et al., Case No. 4:24-cv-00499 (06/03/24).
