How will employers handle the salary level increase?
As of July 1, 2024, the U.S. Department of Labor’s (DOL) final rule increased the salary threshold for exempt employees from $684 per week ($35,568 per year) to $844 per week ($43,888 per year). Another increase is scheduled for January 1, 2025, raising the level to $1,128 per week ($58,656 per year). This caused employers to decide how to address the increases in the salary level threshold for exempt employees. Employers could, for example, stop classifying many employees as exempt, increase their pay to keep them exempt, or eliminate/restrict overtime.
Employers who responded to our poll indicated that they would address the issue by:
- Increasing employee pay to keep them exempt – 50%
- Reclassifying exempt employees to nonexempt and pay overtime – 0%
- Reclassifying exempt employees to nonexempt and limit/eliminate OT – 20%
- Reducing pay allocated to employees’ base salary to offset OT – 10%
- Using a combination of these – 20% But the final rule faces legal challenges and could be undone.
Legal challenges
So far, one court ruled that the DOL may not enforce the changes for employees of the state of Texas. Other courts have pending challenges that could stop the rule from being enforced nationwide. The U.S. Supreme Court’s ruling overturning the Chevron deference could also play an important role in this final rule. The Texas court used the demise of the Chevron deference in its ruling.
Employers could, because of the legal challenges, choose now to keep employee salaries the same and prohibit overtime.
What the Chevron decision means
Under the Chevron deference, courts were required to consider (defer to) agency regulations. They no longer need to do so; instead, they turn to the law/statute and determine the outcome, and even whether an agency rule should apply.
The federal Fair Labor Standards Act (FLSA) did not include any salary provisions when it comes to determining who is exempt under the Executive, Administrative, and Professional (EAP) provisions. The DOL’s rules, however, did. Since the courts no longer have to contemplate the rules, they can determine that the DOL went beyond its authority when it came up with the salary requirements.
Therefore, courts will decide that the rule regarding exemptions should no longer include any salary requirements, but focus only on duties of employees. In the meantime, employers must still decide how they will deal with the rule and its challenges as this issue continues to evolve.
Key to remember: While the final rule is currently effective, legal challenges could nullify it, leaving employers contemplating their next steps.