Minimum Wage and Overtime Pay

New Minimum Wage and Overtime Pay Effective July 1, 2024

Previously, The Vision Council called to its members’ attention that the U.S. Department of Labor’s Wage and Hour Division had issued a proposed notice of rulemaking to update and revise the regulations currently implementing the exemption of certain white-collar employees from minimum wage and overtime pay. A copy that earlier information can be found here. That final rule was recently published, resulting in new federal salary thresholds that will impact employers. The following are the key take aways from the final rule, which amendment goes into effect on July 1, 2024, and will be updated every three years thereafter.

New Salary Requirements to Qualify as Exempt from Minimum Wage and Overtime

To qualify as an executive, administrative, or professional employee (“EAP”) under the Fair Label Standards Act (FLSA), and thus exempt from the overtime and minimum wage pay requirement, an employee must generally be compensated on a predetermined and fixed salary basis at a weekly rate not less than:
1. Beginning July 1, 2024, $844 per week ($43,888 per year); increased from the current rate of $684 per week ($35,568 per year).
2. Beginning January 1, 2025, $1,128 per week ($58,656 per year).
To be exempted from overtime and minimum wage as a highly compensated employee (“HCP”), the final rule increases the amount of annual compensation an employee earns to:
1. Beginning July 1, 2024, $132,965 or more per year; increased from the current amount of $107,432 (at least $684 per week).
2. Beginning July 1, 2025, $151,164 or more per year.

Certain employees, including doctors, lawyers, teachers and outside sales employees are not subject to the salary tests. Also, qualifying as either an EAP or an HCP requires satisfaction of other regulatory requirements setting out certain duties associated with executives, administrative, professional employees.

Will These Changes Really Go into Effect?

Time will tell whether the changes will be implemented on July 1, 2024. In 2016, the Labor Department pushed forward a similar proposed rulemaking, only to have it struck down by a federal district court in Texas. As of now, no court case has been brought to enjoin the changes from going live on July 1st.

However, two Republican lawmakers, Rep. Tim Walberg (Mich) and Sen. Mike Braun (Ind) have introduced a resolution under the Congressional Review Act (“CRA”) to block the changes from being promulgated. Under the CRA, agencies must report the issuances of rules to Congress and provide Congress with special procedures in the form of a joint resolution of disapproval under which Congress may overturn the administrative rule. If a joint resolution is approved or disapproved by the Senate and the House and is signed by the President, or if Congress were to override a Presidential veto, then the rule cannot go into effect.

General Information

Department of Labor's Notice on Proposed Rulemaking

The U.S. Department of Labor’s Wage and Hour Division has issued a proposed notice of rulemaking (“NPRM”) to update and revise the regulations currently implementing the exemption of certain white-collar employees from minimum wage and overtime pay under section 13(a)(1) of the Fair Labor Standards Act (FLSA). Specifically, the proposal includes (1) increasing the standard salary level generally required for exemption; (2) increasing the highly compensated employee total annual compensation amount; and (3) automatically updating the earnings thresholds every three years using current wage data. Comments to the NPRM are due by November 7, 2023.

Understanding the Existing Law

The FLSA requires employers to pay employees a minimum wage, and to pay overtime of at least 1.5 times the employee’s regular rate of pay for those who work more than 40 hours. The FLSA, however, exempts from the overtime and minimum wage pay requirements employees employed in a “bona fide executive, administrative, or professional capacity” (“EAP”). This is commonly referred to as the “white collar” or EAP exemption. The Labor Department years ago developed then refined a test for determining who falls within the EAP designation. It consists of three parts:

The employee must be paid a predetermined and fixed salary (the salary basis test);
The amount of salary paid must meet a minimum specified amount (the salary level test). Currently, that threshold is $684 per week or $35,568 per year, meaning those earning more than that can qualify for EAP exempt status assuming the other criteria are met; and,
The employee’s job duties must be primarily executive, administrative or professional duties as defined by the regulations (the duties test).

Also, the regulations contain a special rule exempting from overtime highly compensated employees (“HCE”). The following criteria must be met to qualify as highly compensated and thus be exempt from overtime:

The employee must earn annual compensation of $107,432 or more, which includes at least $684 per week paid on a salary or fee basis; the rest can consist of commissions, nondiscretionary bonuses and other nondiscretionary income earned during the 52-week period;
The employee’s primary duty includes performing office or non-manual work; and,
The employee customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee. Unlike the EAP employee who must pass the duties test, the HCE test is more a minimal duties test.

The FLSA is a complex law, and this memo simply highlights the applicable portions that the NPRM seeks to change. Other exceptions exist to the salary tests for doctors, lawyers, teachers and outside sales employees, and the definitions of executive, administrative or professional duties also create carve outs. This memo should not be read as a comprehensive review of the FLSA.

What the NPRM seeks to Change?

The NPRM is narrow in its scope of what it proposes to change, notwithstanding its length (79 pages in the Federal Register).

Increase the salary-level threshold for the EAP salary level test from $684/week, $35,568/year to $1,059/week, $55,068/year;
Increase the HCE annual compensation threshold for the HCE test from $107,432 to $143,988.
Implement automatic hikes in these thresholds every three years.
Restore the applicability of overtime requirements to workers in U.S. territories subject to the federal minimum wage.

No changes to the duties tests for the various exemptions are contemplated in the NPRM. Duties previously found to satisfy the regulatory definitions of executive, administrative or professional duties will continue to at this time.

Impact of the NPRM if Promulgated

The Labor Department anticipates that if promulgated, the new overtime thresholds will make approximately 3.6 million additional workers eligible for overtime. Obviously, this will have a significant impact on employers, and particularly small and midsized employers, as it will increase labor costs because of the increased number of workers reclassified as overtime eligible or because companies will pay higher salaries to exceed the new thresholds. Also, companies will experience transitional expenses as they implement compliance steps to ensure workers now designated with a non-exempt status are appropriately compensated and hours monitored. Companies may need to rethink employee participation in networking, conferences, trade shows or other out-of-regular-hours events.

Will the Labor Department be able to implement these changes? A strong pushback against the proposal is expected from business and trade associations during the rulemaking period. Many of the comments filed already simply ask for a 60-day extension to this deadline, which development we will continue to monitor.

Then expect litigation. In 2016, the Labor Department pushed forward a similar proposed rulemaking, only to have it struck down by a federal district court in Texas.

Any questions can be directed to Rick Van Arnam, The Vision Council’s regulatory affairs counsel, at rvanarnam@barnesrichardson.com.