Fair Labor Standards Act (FLSA) laws are changing again! Buckle up, and here we go. The good news is that the law change applies only to “exempt” employees, who will mostly be your managers who are paid a salary (not hourly) because they meet certain salary and exemption requirements. These new requirements are set to go into effect July 1, 2024, and will mostly impact club managers.

(Please note: Labor laws will be among the topics discussed at this year’s EXPO Legal Panel, and will feature Devon Lyon, the attorney interviewed in this piece.)

The Fair Labor Standards Act is a set of federal wage and hour statutes issued by the Department of Labor, including defining whether an employee is classified as “exempt” or “non-exempt.” Employees considered “exempt” are not entitled to overtime when they work over 40 hours per week. A two-prong test determines if an employee is “exempt” or “non-exempt.” The first prong is whether or not the employee meets the “salary test” – i.e., an employee must be paid a minimum salary depending upon the exemption. If you don’t clear this hurdle, the employee is considered “non-exempt.” The current minimum salary for “white collar” employees is $684 per week (or $35,568 annually). For “highly compensated” exempt employees, it’s $2,066 per week (or $107,432 annually).

Devon Lyon

The second prong is whether or not the employee falls within an exemption, namely, executive, administrative, professional, computer, or outside sales employee. This law change will only affect the first-prong salary test.

ED Magazine Legal Correspondent Larry Kaplan spoke with California labor attorney Devon M. Lyon about the ramifications of the FLSA rule change and how this might impact adult clubs in the very near future.

ED: Does the Fair Labor Standards Act apply to all U.S. employees?

Lyon: Yes and no. The Fair Labor Standards Act is a set of federal laws that apply to all U.S. employees. However, if your business is in a state with more protective laws than the Fair Labor Standards Act, you must comply with those laws, or you may be violating those specific state laws.

“Employers should audit their exempt employees’ salaries before July 1, 2024, to ensure they are earning the new minimum salary. Also note that the rule contemplates increases on January 1, 2025, which is right around the corner, so don’t get too comfortable.” – Devon Lyon

ED: Does this law affect independent contractors (non-employees)?

Lyon: No. This does not apply to a properly classified independent contractor. This will only apply to employees who meet one of the FLSA exemptions.

ED: Does this law affect the minimum wage for non-exempt employees?

Lyon: No. This change does not apply to “non-exempt” hourly employees. The Federal minimum wage for 2024 is $7.25 per hour. Note that state minimum wage laws often exceed the federal minimum wage; if that’s the case, you must apply the state minimum wage.

ED: Which employees will this affect in adult clubs?

Lyon: This change will primarily apply to managers in the adult club industry. This rule does not affect bartenders, security, D.J.s, barbacks, or any other employees who are considered “non-exempt” hourly employees.

This salary change only applies to FLSA “exempt” employees who meet one of the required exemptions, including the Executive, Administrative, Professional, Computer, or Outside Sales Employee exemptions.

Most exempt manager employees in the adult club industry will fall under the Executive Exemption (requiring an employee to manage two or more full-time employees and have the authority to hire or fire other employees or provide suggestions and recommendations as to the hiring, firing, advancement, promotion or change of status for other employees) or Administrative Exemption (employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers, and the employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance).

ED: What are the specific changes to salary?

Lyon: For “white collar” employees (Executive and Administrative): The $684 minimum salary per week (or $35,568 per year) will increase to $844 per week (or $43,888 per year) and to $1,128 (or $58,656 per year) effective January 1, 2025.

Increased total compensation threshold for the “highly compensated” exemption: The rule raises the total annual compensation requirement for the highly compensated employee exemption from $107,432 per year to $132,964 per year by July 1, 2024, and to $151,164 per year by January 1, 2025.

Automatic updating every three years: The rule implements a triennial automatic update to these thresholds, designed, the DOL says, to align with shifts in worker salaries and provide employers with a predictable timetable for future adjustments. The updates will begin on July 1, 2027, and occur every three years thereafter.

ED: Did the DOJ change the “duties” tests?

Lyon: No. As expected, the changes leave the “duties” tests for the exemptions untouched. So, as before, an employee must generally meet both the duties and pay requirements of at least one exemption to be classified as exempt.

ED: Will the rule face any challenges?

Lyon: The final rule will go up on the Federal Register for public inspection before formal publication, and the rule will face challenges in courts and potential scrutiny in the event of presidential administration turnover following the November 2024 election. As historical background, the Obama Administration’s 2016 rule revised the FLSA exemptions similarly (an increased salary threshold with automatic, inflation-based increases). Still, legal challenges and a new administration resulted in the revision never going into effect. Likewise, this new rule will meet similar challenges, particularly as we approach another election. Nevertheless, club owners should not count on any reprieve or stay – just assume it’s happening and plan accordingly.

ED: What should I do to ensure I’m compliant?

Lyon: Employers should audit their exempt employees’ salaries before July 1, 2024, to ensure they are earning the new minimum salary. Also note that the rule contemplates increases on January 1, 2025, which is right around the corner, so don’t get too comfortable.

The information presented in this article is intended to provide neither an exhaustive analysis of the matters discussed nor to be construed, directly or indirectly, as legal advice. If you have any questions about Fair Labor Standards Act exemptions or whether the Fair Labor Standards Act or more protective state laws apply to your workforce, you should consult an attorney knowledgeable in Federal labor law.

Devon M. Lyon has been an attorney for 20+ years and is the owner and lead attorney at the labor and employment law firm Lyon Legal, P.C. Contact Devon M. Lyon at (562) 216-7382 or email d.lyon@lyon-legal.com.

Larry Kaplan has been the Legal Correspondent for E.D. Publications for 24 years. Mr. Kaplan is a broker in the sale and purchase of adult nightclubs and adult retail stores and the Executive Director of the ACE of Michigan adult nightclub state trade association. Contact Larry Kaplan at 313-815-3311 or email larry@kaplanclubsales.com.

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