The U.S. Department of Labor’s decision to split its final rule updating overtime regulations into two separate updates has caught the attention of employer-side attorneys, who foresee potential compliance challenges. The unprecedented move involves implementing two increases to the Fair Labor Standards Act’s minimum annual salary threshold over the next few years.
The first update, effective July 1, will raise the threshold to $43,888 per year, followed by another increase on Jan. 1, 2025, bringing the figure to $58,656. This will be accompanied by automatic updates every three years starting from July 1, 2027.
Employers are already facing tough decisions on how to navigate these changes, especially regarding payroll adjustments. They must consider whether to convert exempt employees who fall below the threshold to nonexempt status and pay overtime or increase their salaries to maintain exemption.
However, the challenge is compounded by the prospect of two upcoming increases within a short timeframe. Employers must decide whether to implement changes twice—once in July and again in January—or simply adopt the 2025 threshold from the outset. Communicating changes to employees, training managers, and recalculating overtime premiums are additional complexities.
Some attorneys suggest that it may be more practical for employers to adopt the 2025 threshold immediately rather than implement two separate changes within six months. This approach could simplify compliance and minimize disruption.
The DOL’s decision to split the threshold update may also be aimed at preempting legal challenges. By basing the July increase on the methodology outlined in the 2019 rule and using a slightly different methodology for the 2025 increase, the DOL may bolster the rule’s chances of surviving potential legal scrutiny.
However, challenges similar to those faced by the Obama administration’s overtime rule in 2016 are possible. Despite the uncertainties, this presents an opportunity for employers to review exemption classifications more broadly and ensure compliance with the FLSA’s duties test.
In conclusion, the DOL’s decision introduces complexity for employers, who must carefully navigate compliance challenges while also considering potential legal implications and broader exemption classifications.