In a dramatic regulatory move, the Biden Administration has increased the minimum salary necessary for salaried employees to be exempt from overtime from its current $684 per week to $844 per week on July 1, 2024, and then on January 1, 2025, to $1,128 per week, or $58,656 per year.
Exemptions from Overtime Requirement
The federal wage and hour law is the Fair Labor Standards Act of 1938, 29 U.S.C. 201 et seq. The Act requires most employees to be paid time-and-a-half for hours worked beyond 40 hours in any workweek. There are, however, a number of exemptions from the overtime requirement. The most important of these is a complete minimum wage and overtime exemption for bona fide "executive, administrative, and professional employees, and outside salespersons." The statute, however, does not define those terms. Rather, it empowers the Secretary of Labor to define and delineate what is meant by the terms "executive, administrative, professional, and outside sales." The regulation in which those terms are defined is 29 CFR 541.
New Levels for Salary Test Exemption
Regulation 541 imposes both a set of duties tests and a salary test for exemption. With a few exceptions, employees must not only perform the types of duties set forth in the regulation to be exempt, but must also be paid on a guaranteed salary basis. The current minimum salary for exemption is $684 a week. Effective July 1, 2024, the amended regulation raises the salary test in two steps: the initial increase is to $844 per week, then on January 1, 2025, the salary increases to $1,128 per week.
In addition, the regulatory change provides for an automatic review of the salary level every three years after January 1, 2025. In a rather complicated formula based on the cost-of-living, the salary level can be adjusted if necessary, without further regulatory changes.
The increase in the salary test will have a dramatic effect on a number of industries in which salaries are traditionally low. For example, many fast-food restaurants designate employees as "managers" while paying them at or near the current minimum. Starting next year, these employees would have to receive a dramatic increase in salary if they are to remain "salaried exempt."
Will History Repeat?
These changes are certain to be controversial, and no doubt will be challenged in court. Toward the end of the Obama administration, substantial salary increases were proposed and a final rule issued. The changes were immediately challenged in court, and an injunction issued by a Texas federal judge. The Department of Labor (DOL) appealed to the Fifth Circuit, but before the appeal could be heard the new Trump administration took office. The DOL dropped the appeal and initiated some lesser increases. We can be confident that these new changes will also be challenged in court. And, just as before, should the administration change as a result of the 2024 elections, it seems likely that these substantial increases will be reduced or abandoned entirely. So, stay tuned....
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