Earlier this week, the Department of Labor (DOL) issued its final ruling on the overtime regulations governed by the Fair Labor Standards Act (FLSA) — further exacerbating the existing talent crisis in skilled labor sectors.
The ruling raises the minimum salary threshold for employees exempt from overtime pay. Currently, an exempt employee must receive a salary of at least $35,568 annually and fulfill the duties requirement outlined in the FLSA. But under the updated regulation, effective July 1, the minimum annual salary for exempt employees will rise to $43,888, then jump to $58,656 in 2025. This represents an overall exempt salary increase of 60%.
Additionally, the ruling raises the minimum salary threshold for highly compensated employees (HCE) to $132,964 effective July 1, 2024, and then $151,164 in 2025. This represents an increase of more than 40% from the current threshold of $107,432.
And finally, the rule mandates automatic updates to both the minimum salary threshold and the HCE threshold every three years.
Potential impacts of the new overtime ruling
Skilled labor sectors continue to grapple with detrimental staffing shortages — impacting both customer service and bottom-line impact. In fact, in a recent Hireology survey, 91% of hotels cited hiring as a business challenge while 89% of automotive dealerships said the same. These regulatory updates aggravate the situation for several reasons:
- Businesses in the sectors we service like hotels, dealerships, and senior care facilities anticipate substantial cost increases since staff rarely adhere to a strict 40-hour work week
- Businesses now face the inevitable choice of either reducing their exempt and HCE staff — requiring longer hours for the remaining exempt personnel — or diminishing wages to offset the increased costs stemming from this change
- As a consequence, the burden of increased costs will ultimately be passed onto customers, driving up the expense of services for both businesses and consumers
Ultimately, artificially inflating labor costs means businesses that are already short-staffed might need to reduce their levels even more — impacting their ability to service customers and provide quality experiences. On top of that, higher costs for guests amidst ongoing inflation means fewer rooms booked. Both issues are detrimental to the industry’s ability to achieve business goals.
In 2015, the Obama administration made a similar attempt to increase the minimum exempt salary with a rule that was ultimately blocked by a federal judge in Texas. This rule intended to extend mandatory overtime pay to over 4 million U.S. workers, and was contested by business groups and 21 states.
At Hireology we’re committed to playing our part in influencing laws and regulations that threaten to harm our core customer base. Hireology’s CEO, Adam Robinson, testified before the House Small Business Committee in 2016 regarding the impact of the Obama administration’s overtime threshold rule change.
What’s next for employers?
Keep in mind there is still a chance the ruling will be overturned. It is currently under review in accordance with the Congressional Review Act (CRA), which is a federal law that allows Congress to review and potentially overturn new federal regulations issued by government agencies.
Under the CRA, Congress has 60 legislative days to review and possibly repeal the rule through a joint resolution of disapproval. The resolution then needs to be passed by both houses of Congress and signed by the President. Congress also has the power to override a presidential veto.
A CRA vote has taken place on this ruling, and an update on its status is pending. In the meantime, while we wait to hear the outcome of the CRA review, employers can:
- Prepare for the ruling to stay as is. This will require some planning if you have exempt employees who earn less than the finalized amounts.
- Determine what, if any, personnel or policy changes you’ll be making should the rule stay as is and formulate a communication plan to ensure transparency and maintain morale.
- Get involved in the lobbying effort alongside Hireology. There are always opportunities to join forces with organizations like IFA, AHLA, and others that have real power when it comes to influencing Congress.
Leaders in the hotel sector acknowledge the importance of treating their employees fairly and offering competitive compensation to attract and retain talent. However, this rule change effectively imposes labor policies that constrain the industry’s ability to serve both its employees and customers optimally.
