Today’s musical interlude is John Fogerty’s Déjà vu (All Over Again), the first track off his 2004 album of the same name. That was 20 years ago, but the lyrics resonate today.
This song came to mind as I anticipate the reaction from the business community to the Department of Labor’s April 23, 2024 announcement of the expansion of overtime eligibility for certain employees. The final rule was published in the Federal Register on April 26. See 89 F.R. 32842 (April 26, 2024).
First, a quick review of the Fair Labor Standards Act (FLSA). Employees are classified as exempt or non-exempt from the FLSA’s requirements. Non-exempt employees must be paid at least minimum wage and then be paid overtime (time and one-half) for hours worked in excess of 40 in a workweek.
To be classified as exempt, an employee must have primary job duties that are administrative, executive, or professional (the “white collar” exemptions; there are others, but stick with these for our purposes) and meet the “salary basis” test. So – and this is important – even if an employee’s job duties fall within the exemption, they are entitled to overtime if they are not paid enough to meet the salary threshold.
That’s where the new rule comes into play. The current salary threshold of $35,568 ($684/week) will be raised to $43,888 ($844/week) effective July 1, 2024. This means that individuals who make less than that amount (on a 40 hour/week basis) will be entitled to overtime even if they are in a job that is otherwise exempt.
On January 1, 2025, the salary threshold rises to $58,656 ($1128/week). On July 1, 2027, and then every three years after that, the salary threshold will be determined (and the following is the DOL’s phrasing) “by applying to available data the methodology used to set the salary level in effect at the time of the update.”
Here’s an example of the immediate impact: a manager supervises five people and earns $42,900/year ($825/week). Today that employee is not entitled to overtime. As of July 1, 2024, unless adjustments are made to the employee’s salary, they are entitled to overtime.
Note that there are also increases to the “highly compensated” employee total annual salary thresholds. For individuals who make more than the salary at this level, the presumption is that they are exempt from overtime. There are all sorts of other rabbit holes to go down, but that’s not the point of this blog.
The “déjà vu all over again” comes from the anticipated repeat of legal challenges that happened when the Obama DOL tried in May 2016 to raise the salary basis requirement. Just before those regulations were to take effect on December 1, 2016, a federal court in Texas issued an injunction to block that from happening.
The Obama administration appealed the issuance of the injunction to the Fifth Circuit. While that appeal was pending, and with a new administration in the White House, the same judge who issued the injunction ruled on August 31, 2017 that the DOL had exceeded its authority by issuing the final rule. Nevada v. DOL, 2017 U.S. Dist. LEXIS 140522 (E.D. Tex. Aug. 31, 2017).
The Trump administration at first appealed the August 31 decision, but less than a week later the Trump Department of Justice asked the Fifth Circuit to dismiss the appeal as moot. And it did.
Then, effective January 2020, the Trump DOL went ahead and increased the salary threshold requirements for the “white collar” exemptions to their current levels. And the business community was largely silent on that increase.
Businesses organizations immediately telegraphed they intend to challenge the new rule, just as occurred in 2016. That is certainly their right, of course. But, more broadly, the whole federal wage and hour legal landscape is largely broken. Remember, the FLSA – enacted in the early 1900’s – is being applied (awkwardly) to the 21st century workplace. Right now, 34 states (along with territories and the District of Columbia) have minimum wages above the federal level $7.25/hour. A major overhaul sure would be beneficial. Just don’t hold your breath.
The takeaway here? For many, many employers there is now complete uncertainty about what to do. Does an employer preemptively raise employee salaries to meet the anticipated new threshold? Does the employer wait and see, and then scramble to modify its payroll on June 30? It’s understandable if instead you put your head in your hands and say “it’s déjà vu all over again.” Or maybe play a little bit of one of those Creedence songs.