Department of Labor and the Fair Labor Standards Act Exempt Salary Threshold Increase
On April 23, 2024, the U.S. Department of Labor (“DOL”) issued its final rule raising the exempt classification minimum salary threshold. The change is effective beginning July 1, 2024. In addition, the salary threshold for highly compensated employees will raise as well. The final rule also sets automatic increases every three years starting in January 2027. The final rule raises the minimum salary threshold to $844 per week, up from $684 per week. The next increase to $1,128 per week would be on January 1, 2025. For highly compensated employees the minimum threshold increases to $132,964 on July 1, 2024, with the next salary increase to $151,164 becoming effective January 1, 2025.
The DOL conducted extensive research and engaged with employers, workers, unions, and other stakeholders before first issuing the proposed rule in September 2023. Subsequently, the DOL considered more than 33,000 comments in developing the April 2024. In its press release, the DOL stated that the final rule expansion of the salary thresholds will also expand overtime wage protection for “millions of the nation’s lower-paid salaried workers.”
Employers likely remember scrambling in 2016 when under the Obama administration the DOL sought to raise the minimum threshold base salary from $455 per week to $913 per week. (At an increase of $458 per week, perhaps too large a jump.) A legal challenge was immediately filed in the U.S. Eastern District Court in Texas. (State of Nevada, et. al. v. U.S. Department of Labor, et. al., No. 4:16-cv-731 [E.D. Tex. Nov. 22, 2016]) The Court here enjoined the rule from going into effect finding that the DOL lacked statutory authority to set a minimum salary threshold that would operate as a de facto salary only test for exempt workers.
Then, in 2019, under the Trump Administration, the DOL increased the threshold from $455 per week to $684 per week (exactly half of the $458 increase proposed in 2016). Employers again scrambled to make the decision of whether to increase salaries, or reclassify employees. There were no legal challenges to the smaller increase. Therefore, the Eastern District of Texas ruling was not put to the test at that time.
Accordingly, for the most recent final rule, the DOL returned to the same methodology used by the Trump Administration in 2019 to raise the minimum salary threshold. The 2019 methodology started the salary threshold at a percentile based on the full-time, non-hourly workers in the lowest-earning census region (currently the South). The DOL indicates the same methodology will be used to update the minimum salary thresholds moving forward.
As in 2016, this final rule is likely to be challenged in court. Those challenges would likely rely on the similarities between the 2019/2023 methodology and the old methodology found invalid in 2016. The challenges could also likely utilize a dissenting Opinion in the case of Helix Energy Solutions Group, Inc. v Hewitt, 143 S.Ct. 677(2023), written by Justice Cavanaugh and joined by Justice Alito, that questions whether the DOL even has authority to make such changes under the regulations since “the act focuses on whether the employee performs executive duties, not how much an employee is paid or how an employee is paid…”
As in 2016 and 2019, employers should review their exempt employee salaries and duties to determine whether it will make an adjustment to increase salaries or reclassify currently exempt employees should the rule go into effect. A copy of the final rule can be found on the DOL’s blog, What the New Overtime Rules Mean for Workers. If you have additional questions or need assistance, contact any of the members of the Employment Law Service Group at Stites & Harbison.