2024 ushered in the implementation of and challenges to several wage and hour initiatives by the Biden Administration, most notably, adjustments to the salary basis test and Executive Order 14026, which raised minimum wages for government contractors. In both cases, U.S. federal courts intervened, issuing decisions that will shape how employers approach wages in 2025 and beyond. Keep reading to find out the key points contractors need to know before January 1, 2025.
Overview
The Biden Administration, through the Department of Labor (DOL), passed final rules adjusting the Fair Labor Standards Act’s (FLSA) salary basis test—a required benchmark to avoid overtime liability under the so-called “white-collar” exemptions. The first of these increases became effective July 1, 2024, with a larger increase scheduled for January 1, 2025.
Executive Order 14026 raised minimum wages for government contractors each year by the consumer price index. This rule applies to contracts covered by the Service Contract Act (SCA) and the Davis-Bacon Act (DBA). The hourly wage rate is set to increase to $17.75 on January 1, 2025.
FLSA Salary Basis Threshold Increase Enjoined
Let’s start with the easier of the two: the FLSA. The short answer is that employers do not have to worry about increases to the threshold under the salary basis test on January 1 in order to maintain white-collar exemptions for employees. On November 15, 2024, the U.S. District for the Eastern District of Texas vacated and set aside the DOL’s final regulations, increasing the threshold. Practically, this means the anticipated January increase to $58,656 per year will not go into effect. The decision also pulls back the July 1, 2024, increase to $43,888 per year. Until such time as the decision is appealed, which seems unlikely given the incoming administration, the minimum salary threshold to meet the exemption requirement is $35,568.
Keep in mind that checking state law for salary basis requirements is important as employers must comply with state and federal law. Alaska, California, Colorado, Maine, New York, and Washington have higher thresholds. Moreover, the other components of the test to qualify for the exemptions are still effective. Employers must pay people on a salary basis, which cannot fluctuate based on quantity or quality of work. Additionally, employees must meet the job duties criteria associated with the applicable exemption.
Executive Order 14026
The second major update in wage and hour regulation is a judicial decision impacting minimum wages for government contractors under Executive Order 14026. The Ninth Circuit, in reviewing a motion for injunctive relief, found that President Biden exceeded his presidential authority when issuing the Executive Order because the President does not have the authority to issue a wage mandate. The Ninth Circuit did not immediately enjoin the Executive Order but remanded the case to a lower court to rule consistent with its findings. Also, there is a difference of opinion among federal circuit courts regarding the scope of presidential authority to mandate wage increases for federal contractors. A petition for certiorari is pending in the U.S. Supreme Court. Therefore, federal contractors subject to the minimum wage rules technically remain obligated to increase wages for employees working on or in connection with a covered contract to $17.75. If you need more information on whether an employer’s contract is covered, please see PilieroMazza’s previous article here.
Another factor is the incoming Trump Administration. Because this wage mandate was implemented by executive order, the Trump Administration could revoke the mandate after the January 20 inauguration. While it may seem like Executive Order 14026 would be on the shortlist for revocation, the last Trump Administration did not revoke minimum wage Executive Order 13658 as expected. It remains to be seen whether President-elect Trump will revoke the Executive Order or rely on the courts to resolve the circuit split.
All these moving parts have caused significant confusion about how to handle wage and salary increases in the coming year. If you need assistance weighing your risks and options, please reach out to Nichole Atallah or Sarah Nash, partners in PilieroMazza’s Labor and Employment Group.
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Looking for practical insights on gaining a competitive advantage through a deeper understanding of the government’s compliance requirements? Check out PilieroMazza’s podcasts “GovCon Live!” and “Clocking in with PilieroMazza.
