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The U.S. Department of Labor (DOL) released a final rule on April 23, 2024 that shakes up overtime pay rules under the federal Fair Labor Standards Act (FLSA). The FLSA establishes minimum wage, overtime pay, child labor standards and employer record keeping requirements to facilitate better working conditions. The regulation has been in effect since 1938. Under the new rule, an estimated 4 million workers are expected to lose their exempt status.

  Salary raise or wage increase concepy with the word salary written on wooden blocks with an ascending arrow graph  

Starting July 1, 2024 the salary threshold for bona fide executive, administrative and professional workers will be raised to $844 per week ($43,888 per year). The final rule will also raise the annual compensation threshold for highly compensated employees to $132,964 per year. Both of these amounts are also slated to increase again July 1, 2025 to $1,128 ($58,656 per year) and $151,164 respectively. But wait, there’s more. Beginning July 1, 2027, and every three years thereafter, the salary thresholds will automatically update.

Legal challenges are likely to come before the new rule is expected to take effect. The DOL previously sought to modify the salary level test in 2016, but that effort was ultimately struck down by the federal courts. The DOL subsequently updated the white collar regulations in 2019 which set the salary level test at its current thresholds. In February 2023, two U.S. Supreme Court justices strongly hinted that they doubted the FLSA authorizes a salary basis test at all. In Helix Energy Solutions Group, Inc. v. Hewitt (2023) the Court considered whether paying an employee a “day rate” could satisfy the salary basis component of the DOL regulations governing the highly compensated executive exemption. A majority of the Court concluded that it did not. In a dissenting opinion, Justice Kavanaugh, joined by Justice Alito, wrote that “the regulations themselves may be inconsistent with the Fair Labor Standards Act.”

The bottom line for employers is that they cannot assume that any challenges to the rule will be successful. Employers should review the existing compensation for their workforce and identify whether any increases may need to be made to stay on the right side of the law. Keep an eye out for any legal challenges and be ready to pivot if needed.

See more on about restoring and extending overtime protections.

 

Contributing Author

Stuart Wales, MS, SHRM-CP, PHR, CCP
Senior Consultant, Total Rewards
Nonprofit HR

Stuart Wales is an HR technology advocate, working with clients to leverage solutions that align not only with their current needs but also their strategic needs for the future. Focusing on improved employee experiences, Stuart works with clients to streamline and adapt existing processes and HR programs from a technology lens to transform HR into a strategic partner with the organization and improve mission outcomes. Stuart also works with clients on compensation programs that provide a competitive advantage for talent. Whether it’s creating market-based pricing and compensation structures or performing statistical analyses for compensation equity, Stuart serves as a partner for ensuring that total rewards supports clients’ people strategy.

Learn more about Stuart – see his full bio and other articles he’s authored

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