By: Mary Shahverdian
Recently, the US Department of Labor (“DOL”) released their final rule, updating the Fair Labor Standards Act (“FLSA”)’s overtime pay requirements.
The FLSA sets standards for minimum wages and maximum hours, and these standards cannot be waived. It also provides additional compensation for overtime work. The FLSA is administered and interpreted by the DOL, and the DOL’s interpretation of the FLSA is given considerable weight.
The FLSA protects workers by requiring that all employees be paid overtime for the hours worked above 40 in a workweek. However, certain categories of employees are exempted from the FLSA overtime rules. Being “exempted” from the overtime pay requirements of the FLSA means that an employee is not eligible for overtime pay due to the nature of their job duties and responsibilities.
Relevant to the new rule, two categories of “white-collar” employee exemptions exist. First, executive, administrative, or professional employees (“EAPs”) who earn a fixed, predetermined salary; meet a certain salary threshold; and perform duties typical of an executive, administrative, or professional role face an FLSA exemption. Second, highly-compensated employees (“HCEs”) are exempted. The new DOL rule impacts EAP and HCE employees because it changes the salary threshold for the exemptions.
EAP Employees:
The minimum salary threshold for EAP employees is increased by the DOL’s new rule. The new salary threshold will occur in two phases. The first phase, effective July 1, 2024, the threshold will increase to $844 per week (which is the equivalent of an annual salary of $43,888). Effective January 1, 2025, the threshold will then increase to $1,128 per week (equivalent to an annual salary of $58,656). By increasing the salary threshold for the EAP exemption, fewer administrative and executive employees are likely to be covered by the EAP exemption to the FLSA’s overtime pay requirements, and therefore eligible for overtime compensation.
HCE Employees:
Likewise, more highly compensated employees will be impacted by DOL rule. The earnings threshold for HCEs will increase in two phases. Effective July 1, 2024, the total annual compensation requirement for highly compensated employees will be $132,964. Effective January 1, 2025, the annual compensation requirement will increase to $151,164. Only employees who earn these high salaries will be exempted from the FLSA’s overtime requirements.
Employers:
Under the FLSA, the employer generally bears the burden of proving that an exemption applies. Employers should understand the impact of the DOL’s final rule and be prepared for It to take effect July 1, 2024. Employers are encouraged to seek counsel’s advice to develop a strategy for FLSA compliance, including but not limited to the proper classification of its workforce. It might be useful to increase the salaries of employees to keep them as exempt if you want to maintain the predictability of their income.
Or, an employer may instead prefer to reclassify its exempt employees into non-exempt roles. This would require training in timekeeping requirements and rules against off-the-clock work. Non-exempt employees should not be responding to emails or phone calls during non-working hours.
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This rule is likely to face challenges in court, especially as the 2024 election draws nearer. Bernstein-Burkley will continue to provide updates as this rule develops.
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For more information, visit www.bernsteinlaw.com or contact:
Mary Shahverdian
Associate, Bernstein-Burkley
mshahverdian@bernsteinlaw.com or 412-456-8100