On July 1, 2024, the Department of Labor’s revised overtime exemption rule became effective for most employers, despite the filing of multiple lawsuits seeking to challenge it.  As such, employers must now take steps to ensure that their employees are properly classified in order to comply with the new rule.

            Final Rule Summary

On April 23, 2024 the United States Department of Labor (DOL) published its final rule revising the requirements of the Fair Labor Standards Act’s (FLSAs) executive, administrative, and professional exemptions, commonly referred to as the “EAP” or “white-collar” exemptions.  Pursuant to the FLSA, employers are generally required to pay time-and-one-half to employees who work more than 40 hours per week.  Bona fide white-collar employees, however, are exempt from the FLSA’s overtime provisions and, as such, are not entitled to overtime.  In order to qualify for one of these white-collar exemptions, an employee must generally satisfy a three-part test which considers an employee’s: (1) primary duty; (2) method of payment; and (3) minimum salary level.   It is the third part of this test – the minimum salary level threshold – that is impacted by the final rule.

Specifically, and with limited exception, the final rule increases the applicable salary level thresholds needed for the white-collar overtime exemptions to apply.  As such, depending on salary, many employees who were once exempt from overtime wages may now be entitled to receive them.  In particular, it is estimated that the rule will expand overtime pay eligibility to approximately 4 million workers by raising the minimum annual salary threshold from $35,568 to $43,888 ($884 per week), effective July 1, 2024.  The salary level threshold for highly compensated employees (HCEs) also increased on July 1, 2024 to $132,964.  On January 1, 2025, those salary levels are also slated to rise again to $58,656 annually ($1,128 per week) for EAP exempt employees, and $151,164 for HCEs.

            Status of the Final Rule

Not long after the final rule was published, several lawsuits were filed challenging it.  A separate resolution was also introduced in Congress seeking to block the rule from taking effect.  As such, until recently, many employers were left waiting to see what impact, if any, the pending lawsuits and legislation would have on the final rule. 

On June 28, 2024, however, that question was answered when a federal judge overseeing a lawsuit filed by the State of Texas granted a preliminary injunction for the State of Texas only. Thus, as of July 1, 2024, the final rule became effective for all employers, including those eligible employers in the State of Texas; only the State of Texas, itself, is exempt. 

Several other lawsuits challenging the rule also remain, but those outcomes are uncertain.  As such, the State of Texas is currently the only employer exempt, at least temporarily, from the salary level increases mandated by the new rule.

            Guidance for Employers Under the Final Rule

Until these pending lawsuits are resolved and/or new legislation passes to eliminate the new rule, the new salary level thresholds are in effect for all employers, with the exception of the State of Texas.  As such, it is very important that employers review their employee salaries and classifications to ensure that they are in compliance with the new rule.  Issues for consideration may include, but are not limited to:

• Increasing the salaries of once-exempt employees who no longer satisfy the minimum salary levels necessary to qualify for an exemption;

• Reclassification of impacted employees from exempt to non-exempt, thereby entitling these employees to overtime; and/or

• Reevaluating highly compensated employees to determine whether, based upon the duties performed, they may still qualify as exempt under one of the other white-collar exemptions.

If you have any questions about the requirements of the final rule and/or require assistance determining compliance, please do not hesitate to contact any member of this Firm.