On April 23, 2024, the Department of Labor published its Final Rule raising the salary thresholds for certain overtime exemptions under the Fair Labor Standard Act (“FLSA”). The Rule applies primarily to the FLSA’s “White Collar” exemptions for Executive, Administrative, and Professional employees as well as highly compensated employees (“HCE”). The Final Rule is set to take effect on July 1, 2024, though it will likely be subject to legal challenge.
Here are the major takeaways:
White Collar Exemptions
- The standard salary level for the FLSA’s White Collar exemptions will increase from $684 per week to $844 per week (or $43,888 annually) on July 1, 2024.
- Six months later, on January 1, 2025, the standard salary level will increase to $1,128 per week (or $58,656 annually for a full-time worker).
HCE Exemption
The HCE total annual compensation level will increase from $107,432 per year to $132,964 per year on July 1, 2024, and then to $151,164 per year on January 1, 2025.
- Pursuant to the Rule, if an employee’s total annual compensation does not total at least $132,964 by the last pay period of the 52-week period, the employer can make up the difference by making a one-time payment to achieve the required level no later than the next pay period after the end of the year.
- Up to 10% of an employee’s salary amount may be satisfied by the payment of nondiscretionary bonuses, incentives, and commissions, that are paid annually or more frequently.
Other Takeaways
- The salary thresholds will be updated every three years beginning July 1, 2027, based on current earnings data. The “current earnings data” is determined by “the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region (currently the South).”
- The Rule does not change any of the duties tests associated with the White Collar exemptions.
- The Rule does not apply to exempt employees in the U.S. territories of Puerto Rico, Guam, the U.S. Virgin Islands, and the Northern Mariana Islands.
- The salary thresholds do not affect any workers in named occupations who are not required to pass the salary requirements including: physicians, lawyers, teachers, academic administrative personnel, educational administrators, and outside sales workers. Accordingly, these employees’ exemption status remain unaffected by the Rule.
In light of the Rule, employers will need to reevaluate their exempt employees and confirm these individuals will earn the new threshold amounts required by the Rule. Employers should consider whether their existing exempt workers’ salaries require increases. Otherwise, these individuals will no longer be considered exempt employees and will be entitled to overtime pay. Due to the time associated with analyzing these issues, employers should immediately take the necessary steps to ensure compliance by July 1, 2024.
