New Overtime & Exemption Regulations UPDATED

Written by Ryan R Callan, MS, SHRM-SCP, CCP

First, it is important to note that more than a dozen business groups and associations have filed a lawsuit against this regulation. We do not know yet if a judge will delay the implementation of this regulation while it works its way through the court system. What we do know is that the April 23rd, 2024, Department of Labor’s overtime / exemption final rule implementation notice has spurred numerous questions from AE Members. Inquiries are seeking clarity on what all changed, compliance requirements, and timelines. Confusion persists regarding the specifics of compliance and the implementation timeline. This article aims to provide insight into the current status, potential regulatory developments, and existing employer obligations. It is important to note that at this time, these changes are final and have been implemented within the Fair Labor Standards Act (FLSA) regulations, unless a judge halts or delays the date. We should also note that more lawsuits are pending that might challenge this regulation before it becomes effective. It is highly recommended that employers start planning for the changes below but be cautious in the timing of implementing changes due to potential court decisions. Assuming this regulation eventually goes into effect, below are some details. Key points of the final rules’ updates:

• The only explicit change implemented this year is to the minimum salary level required for an employee to be classified as exempt.
• Key to note, no changes to the FLSA’s duties tests were implemented. For detailed information on the duties tests, please visit http://www.dol.gov/whd/overtime/fs17a_overview.htm.
• Regarding the salary level changes, below is a brief timeline showing what is expected for exempt employees within the FLSA’s most common classifications (Executive, Administrative, Professional, and Computer. The following is not applicable to the “Highly Compensated Employee” classification).
  • Current rule: at least $684 per week salary = $35,568 per year. Expires July 1st, 2024.
  • Effective July 1st, 2024 for the exempt salary requirement:
    • A minimum of $844 per week salary = $43,888 per year. Expires December 31st, 2024.
  • Effective January 1st, 2025 for the exempt salary requirement:
    • A minimum of $1,128 per week salary = $58,656 per year. To be updated: July 1, 2027*

*The USA Department of Labor (DOL) has expressed that the above noted amounts will be updated on a 3-year cycle, beginning July 2027. The updates’ objective will be to raise the salary level to that of the 35th percentile of full-time salaried employees within the lowest paid census region (currently this is the south region).

• Under the “Highly Compensated Employee” exemption classification:

• Current rule: a salary of at least $107,432 per year. Expires July 1st, 2024.
• Effective July 1st, 2024 for the exempt salary requirement:
  • A minimum salary of $132,964 per year. Expires December 31st, 2024.
• Effective January 1st, 2025 for the exempt salary requirement:
  • A minimum salary of $151,164 per year. To be updated: July 1, 2027**

**The USA DOL determined for the High Compensated Employee threshold needed to align with the 85th percentile of full-time salaried workers nationwide.

Employers’ Next Steps:
There are critical tasks employers should consider, if not already established:

• Update job descriptions for all positions, then for the positions of interests within your business operations, assess those positions exemption eligibility against the FLSA classifications’ criteria. If eligible, you will need to raise those employees’ salaries to meet the minimum thresholds to allow them to remain exempt or move to nonexempt hourly (see next bullet).
• Move any exempt employees that will not meet the new minimum salary threshold to non-exempt status, which will turn their jobs into hourly paid positions, and will be subject to overtime. Employers will need to pay overtime or limit non-exempt employees’ hours worked to a maximum of 40 hours per week. A strategy could be hiring additional employees to cover workloads and not pay overtime.
• Document your job description and exemption classification assessment efforts and results. These notes will support and help your organization track, and/or defend the decision-making process, should it be audited or challenged in the future.

A valuable resource for your assessment and detailed review: https://www.dol.gov/agencies/whd/fact-sheets/17a-overtime

Of course, reach out to us via the AE HR Hotline for further information, and guidance on this development and these new expectations.