The Federal Dept. of Labor Issued Its Final Rule - Minimum Salaries For Exempt Employees Are Going Up 7/1/24

The U.S. Department of Labor (DOL) issued its Final Rule this week increasing the minimum salary requirement for overtime exempt employees. The changes are:

• On July 1, 2024, minimum salary increases from $35,568 to $43,888.
• On January 1, 2025, minimum salary increases to $58,656.
• Using the then-current earnings data and a percentile of the lowest-wage Census Region (South), the Rule also includes automatic updates to the minimum salary every 3 years.

In 2016, a similar DOL rule was nullified days before it was scheduled to become effective, after many employers had already raised salaries or reclassified employees. Given the likelihood of legal challenges here, employers are again faced with uncertainty of whether the rule will take effect. We are advising clients to prepare for the July 1, 2024 change.

What may delay or prevent the Final Rule from becoming effective:

• Pending litigation attacking whether the DOL has the statutory authority to impose any salary requirement in defining criteria for such an exemption. Mayfield v. U.S. Dept. of Labor is currently on appeal in the federal Fifth Circuit attacking the DOL's authority to increase salaries.
• Challenges to whether administrative agencies like the DOL have such rulemaking authority. Currently, the U.S. Supreme Court is deciding the extent of an administrative agency’s rulemaking authority or whether only Congress may implement such rules. (Loper Bright Enters. v. Raimondo and Relentless, Inc. v. Dept. of Commerce.)
• Possible challenges to the DOL’s authority to implement automatic updates to the minimum salary threshold and change to the methodology for determining the standard salary level.
• Possible DOL administration changes following the November 2024 Presidential election.

What Should Employers Do Now:

• Identify current employees who are classified as FLSA exempt and earn less than the new increased salary amounts (7/1/24- $43,888 and 1/1/25- $58,656).
• Consider the long-term impact of mandatory, periodic (every 3 years) increases for minimum salaries and controlling overtime costs for employees previously exempt who are now in a supervisory role and reclassified to non-exempt.
• Consider the impact on employee morale if significant changes are made, e.g., will other employees be expecting pay increases?
• Prepare to communicate any changes to the affected employees promptly and in writing.

Unfortunately, we believe that the Final Rule will become effective on July 1, 2024. Only by considering all issues will employers be prepared to make critical adjustments.