BACKGROUND

Historically, the salary threshold has been a fixed amount that has not changed with inflation. The DOL previously updated the fixed salary threshold three times in the last 50 years. Previous thresholds set below which workers were entitled to overtime pay:

• In 1975 at $250 per week, or$13,000 annually.
• In 2004 at $455 per week, or $23,660 annually.
• In 2019, at $684 per week, or $35,568 annually.

The DOL’s 2016 proposed rule was blocked in US District Court in Texas just 9 days before the rule came into effect because the judge agreed with plaintiffs in a suit that the DOL had raised the salary threshold so high that the Duties Test became irrelevant; however, the judge did state that the DOL can set the minimum salary level and adjust that level based on inflation.  The DOL had wanted to set the minimum salary at $47,476, which was over double the minimum annual salary at the time ($23,660).  In 2019, the DOL was successful in raising the minimum salary to $35,568, the current limit.

 

IMPLICATIONS FOR EMPLOYERS

Employers must assess the classification of salaried employees to ensure compliance with the updated salary thresholds.

For employees affected by the new rule, employers have several options:

• Adjust salaries to meet the new thresholds to maintain exempt status.
• Prepare to pay overtime to affected employees who will become eligible under the new thresholds.

Employers face a strategic decision regarding the timing of salary adjustments to meet new thresholds. While a two-part approach offers flexibility by spreading out the increase, some employers may prefer to address both updates simultaneously to streamline the process and avoid duplicative efforts for affected employees.

This decision requires careful consideration of practicalities and employer preferences to ensure a smooth transition while meeting regulatory requirements efficiently.

Additionally, adjustments to schedules may be necessary to control overtime costs. It's crucial to communicate openly with affected employees to explain changes from exempt to nonexempt status.

We recommend employers strategize the rollout of reclassification decisions, including training reclassified employees on timekeeping regulations and addressing employee concerns.

 

NEXT STEPS FOR EMPLOYERS

Navigating these new regulations requires proactive engagement to ensure compliance and mitigate potential risks. By evaluating workforce practices, communicating effectively with employees, and staying abreast of legal developments, business owners can adapt their strategies to align with evolving legal standards and protect their business interests effectively.

Understanding the nuances of these laws and seeking appropriate legal counsel when appropriate will be essential for navigating the complexities of the regulatory landscape and ensuring the continued success of your business.

We will continue to monitor developments closely and keep you informed of any updates or changes that may impact your business.