Announced on April 23, 2024, the Department of Labor’s (DOL) Wage and Hour Division’s (WHD) final rule (Rule)—Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees—will begin impacting employers as soon as July 1, 2024. Under the Rule, to maintain employee white-collar exemptions, employers will need to ensure employees are paid a salary of $844 weekly or $43,888 annually ($132,964 annually for highly compensated employees). These thresholds will increase again on January 1, 2025, to $1,128 weekly or $58,656 annually ($151,164 annually for highly compensated employees). Thresholds will increase every three years on July 1, 2024, making the next threshold increase occurring on July 1, 2027. WHD intends to update the threshold levels 150 days before the update is required, meaning we can expect the next update to occur on or before February 1, 2027. While the Rule is likely to face court challenges, meeting both the duties test and the increased salary basis test can be challenging. Employers should start the following processes to ensure they are prepared before July 1.
- Evaluate potentially affected employees. Employers should assess whether any employee who is currently classified as exempt from the Fair Labor Standards Act (FLSA) due to an administrative, executive, professional, computer professional, or outside sales role will be affected by the increases in the salary basis test. This is also a good time to ensure employees meet the duties test required by the classification. If so, employers will need to increase salaries or convert these employees to non-exempt hourly positions. The Rule does not pre-empt states from implementing heightened standards, so employers should stay attuned to state laws with higher salary basis thresholds, such as California, Washington, and New York.
- Analyze wage compression issues. Employers will need to analyze whether increasing salaries of some individuals to meet the new salary basis test will compress wage rates between those individuals and individuals in other roles. In some instances, it may necessitate raising other salaries in the company if maintaining a significant difference is important to the organization.
- Calculate the cost of conversion. If employees need to be converted to non-exempt hourly positions, employers will need to pay those employees time and a half for all hours worked over forty hours in a work week. Employers will need to estimate the cost impact of converting employees to non-exempt positions as opposed to increasing their salaries to meet the new threshold. Additionally, employers who provide services on projects subject to state or federal prevailing wage laws—such as the Service Contract Act or Davis-Bacon Act—may be subject to additional costs as a result of converting employees to non-exempt positions.
- Review timekeeping applications and procedures. Employers who convert employees into non-exempt roles should ensure they have the timekeeping systems and policies critical to ensuring overtime payments are accurate and documented. Moreover, employers should review applicable state laws for meal and rest break requirements.
- Monitor timing and communications with employees. While the Rule is expected to go into effect on July 1, 2024, we expect the Rule to be challenged much like a similar rule finalized under the Obama Administration. It is important for employers to prepare and make changes, but it is also prudent to wait to inform employees of these changes or implement the changes until the Rule is effective. Waiting will prevent employers from having to walk back changes should the Rule be enjoined.
If you need assistance or have questions regarding complying with and implementing requirements in the Rule, developing policies and procedures, or have other employment-related questions or concerns, please contact Nichole Atallah or another member of PilieroMazza’s Labor & Employment Group.
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