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On April 23, the U.S. Department of Labor (DOL) issued its final rule regarding the salary threshold for overtime exemptions under the Fair Labor Standards Act (FLSA). This development will significantly impact employers, as it affects compliance obligations, budgets, and payroll. This bulletin describes key elements of the rule, its implications for employers, and compliance recommendations.

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The final rule, “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees,” was officially <a href="https://www.dol.gov/agencies/whd/overtime/rulemaking" target="_blank" rel="noreferrer noopener">announced</a> after a period of commentary and opposition from various stakeholders. It revises the salary thresholds for highly compensated employees and exempt employees, extending overtime protections to a broader segment of the workforce. Key provisions include:

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The new rule could potentially face legal challenges similar to those made in 2016 to a similar rule proposed by the DOL under President Obama. As they did back then, challengers will likely argue that the significant salary threshold increase for exempt employees shifts focus from an employee’s job duties to their salary, thereby exceeding the DOL’s authority. This argument was central in 2016 when a Texas federal court ruled that the DOL’s rule undermined the duties-based nature of the Executive, Administrative, Professional (EAP) exemption. That court issued a nationwide ban on the 2016 rule, and the DOL abandoned appealing the decision after President Trump took office. In light of the new rule’s 64% increase and automatic triennial adjustments, it is plausible that similar legal challenges could resurface, contesting the DOL’s adherence to statutory limits. Given that the first threshold increase takes effect this summer, however, it is unwise to wait to see whether these expected challenges materialize and succeed before July 1, 2024.

Employer Implications and Recommendations

The updated rule affects approximately 4 million workers and imposes significant new compliance challenges on employers, particularly those in industries or regions with lower average wages. Many employees previously classified as exempt will now fall below the new salary thresholds, requiring their reclassification to non-exempt and making them eligible for overtime. Alternatively, employers wishing to keep certain employee categories as exempt would have to increase base compensation. Either way, many employers will face higher payroll expenses and will need to adjust their compensation policies in a relatively short period of time.

To navigate these changes effectively, employers should consider taking the following steps:

<em>This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel.</em>

<em>This document may be considered attorney advertising in some jurisdictions.</em>

https://admin.thompsonhine.com/wp-content/uploads/2024/04/Labor-Employment-Alert-DOL-Issues-Final-Salary-Rule-for-Overtime-Exemption.pdf

DOL Issues Final Salary Rule for Overtime Exemption

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