14 May 2024

Come One, Come All: Welcome to the Salary Threshold Circus!

The wait is over. On April 23, 2024, the U.S. Department of Labor (DOL) announced its highly anticipated final rule related to compensation thresholds for overtime eligibility.  This latest announcement is yet another iteration of the legal saga that has developed on this topic in the last decade.

As many employers will remember, in 2016 the DOL issued a final rule to increase the salary threshold to over $900 per week.  The 2016 overtime rule was later invalidated by a federal judge for the Eastern District of Texas in 2017.  While ultimately helpful to employers, the decision was maddening because many employers had already taken steps to implement or had implemented the salary increases necessary to maintain their workers’ status as exempt from the Fair Labor Standard Act’s overtime requirements.

Since then, the Trump administration made a smaller raise to the salary-level threshold to $684 per week, and employers breathed a sigh of relief.  However, that relief was short lived as the Biden administration took office and announced immediately that it would raise the salary threshold again.  So here we are again, on the precipice of another large salary threshold increase, with employers left wondering whether these increases will actually go through or not, whether they should be action or waiting, and whether they will ever get off this merry-go-round or not.

In the face of all this legal mess and while we wait to hear about legal challenges, here’s what employers need to know:

  1. Significant compensation threshold increases: The DOL’s final rule (https://www.dol.gov/sites/dolgov/files/WHD/flsa/ot-541-final-rule.pdf) increases the compensation threshold (currently $684 per week) used to determine whether a worker is exempt from overtime pay as follows:

July 1, 2024:                           $844 per week ($43,888 per year).

January 1, 2025:                    $1,128 per week ($58,656 per year).

Beginning July 1, 2027:        Automatic increases based on inflation will occur every three years.

  1. True-up period for variable compensation: The new rule allows for certain types of variable compensation (e.g., bonuses, commission, incentive payments) to account for up to 10% of the minimum salary amount, and a true-up after December 31 if the variable compensation, combined with the fixed salary, did not account for enough wages to meet the minimum salary amount.
  2. Increases to the salary threshold for highly compensated workers: In addition to the general salary exemption thresholds, the rule will raise the threshold for classification as a highly compensated employees from $107,432 to $132,964 in July 2024, and then to $151,164 in January 2025. This change will also be subject to automatic increases thereafter.

We anticipate that the rule will be challenged in court, just like the previous challenge to the 2016 overtime rule. However, there is no guarantee that a legal challenge will come before July 1.  Therefore, we recommend that employers begin to take steps to implement the new rule by reviewing exempt positions and determining which workers may be impacted by this new rule.

We will continue to monitor the status of the overtime rule and keep you updated.  Please reach out to any member of Miller Johnson’s labor and employment team if you have any questions.