On April 23, 2024, the U.S. Department of Labor (DOL) announced a final rule that increases the salary thresholds required to classify certain employees as exempt from overtime pay requirements under the Fair Labor Standards Act (FLSA).  The final rule, applicable to employees who otherwise satisfy the “white-collar” (bona fide executive, administrative, and professional) and “highly compensated” exemptions, is similar to the proposed rule DOL issued last August, although the salary thresholds in the final rule have been increased to align with the latest Census salary data.

The final rule represents a sharp increase—approximately 65%—from the current salary thresholds implemented in 2019 under the Trump Administration.  The rule is scheduled to take effect in two phases, with the first phase effective July 1, 2024 and the second on January 1, 2025.  Thus, employers have only a small window to determine how the rule will impact their operations and make any necessary adjustments.

Overview of the Final Rule

Currently, certain “white-collar” employees may be exempt from FLSA overtime pay requirements if they are paid on a salary basis, meet a minimum salary of at least $684 per week ($35,568 annually), and perform certain exempt job duties as described in the relevant regulations.  An employee who performs at least one exempt duty and makes $107,432 annually may also be exempt as a “highly compensated” employee.  The final rule does not make any changes to the “duties test,” so there will be no change to which types of workers qualify as “white-collar” based on the job duties they perform.

Under the new rule, the minimum salary thresholds for the white-collar and highly compensated exemptions will increase in two phases:

White-Collar Exemption

  • July 1, 2024:  $844 per week (or $43,888 annually)
  • January 1, 2025: $1,128 per week (or $58,656 annually)

Highly Compensated Exemption

  • July 1, 2024:  $132,964 annually
  • January 1, 2025:  $151,164 annually

Significantly, instead of issuing future salary threshold changes through formal agency rulemaking, under the new rule salary thresholds will automatically update every three years to align with the latest Census salary data unless DOL decides to change its methodology or unforeseen economic conditions require a delay.

Possible Challenges to the Final Rule

The final rule may face legal challenges, similar to DOL rules issued under the Obama and Trump Administrations.  For example, a Texas federal court invalidated the Obama Administration’s 2016 overtime regulations.  More recently, in September 2023, a different Texas federal court rejected a challenger’s attempt to overturn the Trump Administration’s 2019 rule, holding that DOL permissibly used its authority to issue new salary thresholds.  The U.S. Court of Appeals for the Fifth Circuit is currently considering that decision on appeal, and the outcome could pave the way for challenges to the final rule and delay implementation.  A change in administration following the 2024 Presidential Election could also impact the future of the final rule. 

Practical Tips for Employers

Despite legal and political uncertainty, employers should promptly consider how the changes will affect their workforce.  As an initial matter, employers should identify whether they have exempt employees whose compensation will now fall beneath the new thresholds, and consider adjustments.  Such employees could be reclassified as nonexempt (and thus overtime-eligible) or receive an increase in compensation by the July deadline to maintain their exemption.  If employees will be reclassified as nonexempt, employers may want to assess budgetary impacts stemming from overtime costs, if such employees work outside of normal business hours.  In addition, for newly classified nonexempt employees, employers will need to carefully track hours worked and ensure that employees receive all overtime compensation to which they are entitled. 

As part of any reclassification plan, employers should be alert to morale issues that could stem from converting exempt employees to nonexempt, including using care in messaging the changes so that employees understand they are not being demoted or otherwise suffering an adverse employment action.  Employees may also be frustrated with necessary changes to their timekeeping habits and reduced schedule flexibility, and managers may feel overburdened if they are required to take on extra work that used to be performed by reclassified employees.  Employers should engage legal and human resources support to anticipate and manage issues arising from these changes.

Employers should also keep in mind that some states, such as California and New York, continue to have stricter requirements and higher salary thresholds for overtime exemption than the FLSA.

Although the timeline for implementation is somewhat uncertain, the new rule provides an opportunity for employers to assess the FLSA status of all employees and plan for any needed changes to ensure compliance if and when the rule becomes effective, which could be as early as July 1, 2024.  

Print:
Email this postTweet this postLike this postShare this post on LinkedIn
Photo of Lindsay Burke Lindsay Burke

Lindsay Burke co-chairs the firm’s employment practice group and regularly advises U.S., international, and multinational employers on employee management issues and international HR compliance. Her practice includes advice pertaining to harassment, discrimination, leave, whistleblower, wage and hour, trade secret, and reduction-in-force issues arising…

Lindsay Burke co-chairs the firm’s employment practice group and regularly advises U.S., international, and multinational employers on employee management issues and international HR compliance. Her practice includes advice pertaining to harassment, discrimination, leave, whistleblower, wage and hour, trade secret, and reduction-in-force issues arising under federal and state laws, and she frequently partners with white collar colleagues to conduct internal investigations of executive misconduct and workplace culture assessments in the wake of the #MeToo movement. Recently, Lindsay has provided critical advice and guidance to employers grappling with COVID-19-related employment issues.

Lindsay guides employers through the process of hiring and terminating employees and managing their performance, including the drafting and review of employment agreements, restrictive covenant agreements, separation agreements, performance plans, and key employee policies and handbooks. She provides practical advice against the backdrop of the web of state and federal employment laws, such as Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Equal Pay Act, the Family and Medical Leave Act, the Fair Labor Standards Act, and the False Claims Act, with the objective of minimizing the risk of employee litigation. When litigation looms, Lindsay relies on her experience as an employment litigator to offer employers strategic advice and assistance in responding to demand letters and agency charges.

Lindsay works frequently with the firm’s privacy, employee benefits and executive compensation, corporate, government contracts, and cybersecurity practice groups to ensure that all potential employment issues are addressed in matters handled by these groups. She also regularly provides U.S. employment law training, support, and assistance to start-ups, non-profits, and foreign parent companies opening affiliates in the U.S.

Photo of Evan Parness Evan Parness

Evan Parness has a full-service labor and employment practice that includes litigating cutting-edge issues at the trial and appellate levels, negotiating employment aspects of complex M&A deals and other business transactions, and counseling global employers on compliance with national, state, and local employment…

Evan Parness has a full-service labor and employment practice that includes litigating cutting-edge issues at the trial and appellate levels, negotiating employment aspects of complex M&A deals and other business transactions, and counseling global employers on compliance with national, state, and local employment laws and regulations.
Evan represents employers and senior executives in non-compete, harassment, discrimination, retaliation, ERISA, and business tort litigation in state and federal courts, administrative agencies, and alternative dispute resolution bodies. He has secured significant trial and appellate victories for clients, including complete dismissals of discrimination and retaliation lawsuits, successful verdicts following trial, and injunctive relief on behalf of clients enforcing restrictive covenants.

Evan also counsels established and emerging companies on compliance with federal, state, and local employment laws and regulations, and litigation avoidance measures in connection with all aspects of workplace employment issues. He conducts sensitive internal investigations of alleged discrimination and harassment, and assists employers in shaping workplace policies to comply with law and promote a productive working environment.

Evan advises leading companies on the labor and employment aspects of significant business transactions and acquisitions. He negotiates employment-related provisions in business transaction documents and oversees due diligence of a potential target’s employment practices. He also counsels clients on executive employment and restrictive covenants agreements.

Chambers USA notes “Evan is an exceptional and talented lawyer. He possesses a deep understanding of the law and an unwavering commitment to his clients. He has a keen eye for detail and can dissect complex legal issues with remarkable efficiency. His thorough and methodical approach to each case ensures that no stone is left unturned, providing his clients with the best possible legal representation.”

The Legal 500 US notes that clients have commented that “Evan Parness is an amazing attorney. Always attentive and will take instructions outside of business hours, he is always there when we need him and looks for the best outcome for clients.”

Photo of Carolyn Rashby Carolyn Rashby

Carolyn Rashby provides business-focused advice and counsel to companies navigating the constantly evolving and overlapping maze of federal, state, and local employment requirements. She conducts workplace investigations and cultural assessments, leads audits regarding employee classification, wage and hour, and I-9 compliance, advises on…

Carolyn Rashby provides business-focused advice and counsel to companies navigating the constantly evolving and overlapping maze of federal, state, and local employment requirements. She conducts workplace investigations and cultural assessments, leads audits regarding employee classification, wage and hour, and I-9 compliance, advises on employment issues arising in corporate transactions, and provides strategic counsel to clients on a wide range of workplace matters, including harassment and #MeToo issues, wage and hour, worker classification, employee accommodations, termination decisions, employment agreements, trade secrets, restrictive covenants, employee handbooks, and personnel policies. Her approach is preventive, while recognizing the need to set clients up for the best possible defense should disputes arise.

Photo of Tom Plotkin Tom Plotkin

Tom Plotkin advises clients on a range of domestic and international labor and employment issues. His domestic practice focuses on hiring and firing, discrimination, harassment, whistleblower, wage and hour, trade secrets, non-competition, and other issues arising under federal and state employment laws. His…

Tom Plotkin advises clients on a range of domestic and international labor and employment issues. His domestic practice focuses on hiring and firing, discrimination, harassment, whistleblower, wage and hour, trade secrets, non-competition, and other issues arising under federal and state employment laws. His international practice involves assisting companies in developing strategies and policies for managing cross-border workforces.

Mr. Plotkin also focuses on a number of cutting edge issues at the intersection of employment law and workforce management. As part of Covington’s Business and Human Rights Initiative, Mr. Plotkin assists companies in complying with global laws aimed at monitoring forced and trafficked labor in international supply chains. He also frequently partners with white collar colleagues to conduct internal workplace culture assessments and audits in the wake of the #MeToo movement.

Photo of Michelle Barineau Michelle Barineau

Michelle Barineau counsels clients on a broad range of labor and employment issues. She helps clients navigate matters involving discrimination, harassment, family and medical leave, wage and hour compliance, non-competition, trade secrets, and other issues arising under state and federal employment laws. She…

Michelle Barineau counsels clients on a broad range of labor and employment issues. She helps clients navigate matters involving discrimination, harassment, family and medical leave, wage and hour compliance, non-competition, trade secrets, and other issues arising under state and federal employment laws. She routinely provides guidance pertaining to employee handbooks, employment agreements, and workplace policies. Michelle also has experience investigating employment complaints and she frequently partners with white collar colleagues to conduct internal workplace culture assessments and audits in the wake of the #MeToo movement.

Photo of Abby Rickeman Abby Rickeman

Abby Rickeman is an associate in the firm’s Washington, DC office. She practices in the employment, institutional culture and social responsibility, and public policy groups. She also maintains an active pro bono practice.