U.S. Department of Labor’s (DOL) Salary Threshold Increase Is in Effect for Most Employers

U.S. Department of Labor’s (DOL) Salary Threshold Increase Is in Effect for Most Employers

July 23, 2024

It’s Well into July – Are Your Exempt Employees Making At Least $43,888?

A judge from the U.S. District Court for the Eastern District of Texas blocked the enforcement of the new U.S. Department of Labor (DOL) rule for the State of Texas, which aimed to raise the minimum salary thresholds for the Fair Labor Standards Act’s (FLSA) white-collar overtime exemptions. Although the Plaintiff, the State of Texas, was seeking a nationwide injunction, the ruling by District Court Judge Sean Jordan on June 28 states, “Here, the only party before the court is the State of Texas, in its capacity as an employer, suing to prevent the 2024 rule from going into effect,” Jordan wrote. “Texas has put on evidence of its own injuries as an employer but has not otherwise offered any evidence of injuries to other entities or individuals.”

Therefore, the court-imposed injunction currently applies only to the State of Texas as an employer, at least until the court decides the case.

Private employers in Texas, and all employers outside of Texas (including private employers outside of Texas who have non-public employees in Texas) must comply, at this time, with the provisions of the overtime rule that were announced on April 23 and went into effect on July 1.

What Does This Mean for Employers?

Employers not impacted by the June 28 State of Texas injunction must ensure all employees who are classified as exempt from overtime are now making at least $43,888 in base salary.

This is the first step in a multi-step federal plan to expand overtime protections to most American workers. The next deadline under the rule is January 1, 2025, when employers must ensure their exempt employees meet or exceed a higher threshold — $58,656 in base salary. The Final Rule also provides for automatic increases to the salary thresholds every three years, based on then-existing wage data.

The DOL estimates that the July 1 increase will impact one million American workers while the additional increase in January 2025 will impact three million or more.

It’s important to note that the DOL considers the total annual salary to include base pay,  fees, commissions, nondiscretionary bonuses and other non-discretional compensation earned during a 52-week period. When evaluating the salary threshold guidelines, employers must ensure they are also meeting the weekly minimum pay of $844 starting July 1, 2024, and $1,128 starting January 1, 2025.

What Should Employers Do?

Employers and organization leaders should first assess whether any employee salaries fall below the minimum threshold for the dates of either July 1, 2024 ($43,888) or January 1, 2025 ($58,656). If they do, the organization must determine whether those employees may legally be converted to non-exempt status or increase their salaries to meet the minimum threshold. It is critical for organization leaders to begin developing a sound strategy during this time. 

Some suggestions include:

  • Performing a Job Description Analysis
  • Reviewing all Pay Practices
  • Revamping the Compensation Strategy
  • Performing a Cost vs. Benefit Analysis
  • Developing a Communication Strategy
  • Providing Training for Managers
  • Considering Changes in Work Hours and Shifts
  • Ensuring Compliance

If employers do not act, they face increased risk of wage and hour litigation. They also need to be aware that converting exempt employees to a non-exempt status (to side-step these mandated salary increases) will come with other challenges, such as:

  • Compliance with Overtime Rules: Non-exempt employees are eligible for overtime pay. If employers communicate that employees who were previously classified as exempt are actually non-exempt, those who worked more than 40 hours per week in the past may pursue back pay for overtime pay. Additionally, if they continue to work more than 40 hours per week, payroll costs might increase significantly more than the required increase had they remained exempt.
  • Morale and Perception: Altering an employee’s exempt status can affect job satisfaction and perceived professional status, which in turn, can impact productivity and company culture.
  • Operational Efficiency: Reorganizing workloads to manage overtime can be complex, potentially affecting service delivery and operational efficiency.
  • Administrative Burden: With non-exempt status comes the need for meticulous tracking of hours worked, adding to administrative overhead.

Expect Appeals

A host of law firms have posted blogs stating they expect additional legal challenges nationwide seeking a broader injunction, and a possible appeal to the 5th Circuit Court of Appeals in the Texas case. Although we expect that more states will file lawsuits challenging the ruling, the final rule currently remains in effect.

Next Steps for Organization Leaders

Organization leaders should begin assessing the potential impact on payroll and consult with trusted human resources consulting advisors to consider all facets of operational management before determining strategy.

Employers should also note that complying with this new overtime rule is not merely about fulfilling legal obligations — it’s about valuing and retaining their workforce through fair compensation. It can be challenging to strike the right balance to maintain compliance and foster a positive work environment, but it possible to achieve with the right strategy.

For guidance tailored to specific organizational circumstances, employers should contact REDW’s HR Consulting experts. We’re ready to help leaders chart the most appropriate path forward for their organizations.

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