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FLSA Increase Halted

In April 2024, the U.S. Department of Labor finalized a new rule significantly increasing the salary threshold for exempt employees. This rule would have increased the minimum salary that employers must pay employees under executive, administrative, and professional (“EAP”) exemptions to avoid having to pay overtime wages for overtime hours worked. Overtime wages, also known as premium pay or pay at time and a half, are required by the Fair Labor Standards Act (FLSA) for non-exempt, hourly employees. The rule originally went into effect in April of 2024 with the first increase in the minimum threshold amount being implemented on July 1, 2024. Thus, many employers have already complied with the rule’s initial salary increase requirement.

Prior to July 2024, any salaried worker falling within the EAP exemptions who made less than $684 per week (equivalent to $35,568 per year) had to be paid overtime wages. Under the new Department of Labor rule, this amount was raised to $844 per week (equivalent to $43,888 per year). The next increase was set to take effect on January 1, 2025, and would have increased that threshold to $1,128 per week (equivalent to $58,656 per year). Additionally, this rule was slated to include a mechanism that would automatically increase the exemption salary level every three years beginning on July 1, 2027. The second salary increase slated for January 1, 2025, would have resulted in 3 million more workers becoming eligible for overtime pay in the U.S.

However, due to a recent court ruling out of the United States District Court for the Eastern District of Texas vacating the rule, the second increase previously required to be implemented on January 1, 2025, will no longer go into effect. Additionally, the initial required increase that occurred on July 1, 2024, was also rescinded, and will revert back to the amount dictated by the prior rule ($684 per week/$35,568 per year). It is possible that this decision may be appealed, but it is not likely given the change in Administration that will occur in January.

In Pennsylvania, employers are required to provide reasonable advance notice of any changes in compensation before the time is actually worked, and such notice should be in writing. Also, employers must be wary of the FLSA’s salary basis rule, which prohibits fluctuation in salary for exempt employees except under certain circumstances. As such, should an employer wish to revert salaries to the prior exemption threshold, it is recommended that the employer consult with legal counsel first to ensure that the requirements of both state and federal law are met. Stock and Leader’s Employment Team is ready to assist employers when navigating this issue.

 

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