By Allen Smith, J.D.
The July 1 effective date for the initial increase to the overtime rule’s salary threshold for white-collar exemptions is fast approaching, and 88 business groups have asked the U.S. Department of Labor (DOL) for more time to comply with the regulation. We’ve gathered articles on the news from SHRM Online and other outlets.
Little More than Two Months Were Given to Comply
The DOL’s Wage and Hour Division (WHD) “is providing the regulated community with only two months to analyze the rule, determine what changes to their operations and payrolls will be necessary, explain to the impacted workers how and why their pay, titles or workplace responsibilities will change, and then implement those changes,” according to a May 9 letter to the DOL spearheaded by the Partnership to Protect Workplace Opportunity. It was signed by dozens of business groups, including the American Hotel & Lodging Association, the Associated Builders and Contractors, and the National Retail Federation.
In a May 9 hearing with acting Labor Secretary Julie Su, Republican senators shared concerns about the new overtime rule imposing additional costs on businesses with short notice. Su said the rule’s two-step phase-in is intended to give businesses ample time to prepare for the new rule.
Groups Seek Sept. 1 Effective Date
“This is an arbitrary and burdensome timeline for the regulated community to meet, especially smaller businesses that do not have the resources to make such changes quickly,” the letter from the business groups stated. “We therefore request the Wage and Hour Division extend the implementation date for this increase to at least Sept. 1, 2024, to allow employers sufficient time to understand the rule, implement the necessary alterations and inform workers of the changes that will significantly impact them.”
In comments on the proposed rule, SHRM suggested tying the initial effective date to the beginning of the next calendar year—Jan. 1, 2025—or 180 days after publication, whichever is later. A Jan. 1 effective date would allow “employers to tie any classification or pay-related changes into budgeting efforts and operational changes for the new year,” wrote Emily M. Dickens, SHRM chief of staff, head of government affairs, and corporate secretary.
The DOL said it was important to update the standard salary level as of July 1 to account for “substantial earnings growth” since the DOL updated the salary threshold in the rule that took effect Jan. 1, 2020. The department added that some employers’ budget years begin on July 1. The DOL also said employers would then have six months to comply with the salary threshold under its “new standard salary level methodology” on Jan. 1, 2025.
Rule’s Two-Part Approach
The DOL’s two-part approach to implementing its new overtime rule—establishing one raise of the salary threshold on July 1 and another on Jan. 1, 2025—gives employers options for adjusting the pay of their exempt employees.
Effective July 1, the Fair Labor Standards Act’s (FLSA’s) annual salary threshold for white-collar exemptions to overtime requirements will increase from $35,568 to $43,888. As of Jan. 1, 2025, the annual salary threshold will rise to $58,656. Workers who fall under the FLSA’s “white-collar” executive, administrative, and professional (EAP) exemptions are not eligible for overtime pay. To qualify for white-collar exemptions, employees must be paid a salary of at least the threshold amount and meet certain duties tests.
To qualify instead for the highly compensated employee exemption, an employee must be paid a total annual compensation of at least $132,964 (effective July 1, 2024) and then at least $151,164 (effective Jan. 1, 2025), paid on a salary basis. For the highly compensated employee exemption, the exempt worker only has to satisfy one job duty instead of the entire EAP job duties test, said Dena Sokolow, an attorney with Baker Donelson in Tallahassee, Fla.
Lawsuits Challenging Rule Likely
Lawsuits challenging the DOL’s new overtime rule are likely, particularly challenges of its steep increase to the salary threshold for white-collar exemptions effective Jan. 1, 2025. Some HR professionals are wondering whether they should wait until just before the effective dates to comply. Don’t wait, experts say, but do have a plan B in case the rule is blocked by the courts.
