On April 23, 2024, the Department of Labor (DOL) announced its final rule significantly increasing the salary threshold for certain employees to be classified as exempt from overtime pay obligations under the Fair Labor Standards Act (FLSA). The DOL’s final rule increases the minimum salary requirement but does not change the duties tests required for classifying employees as exempt.
Specifically, the final rule:
- Increases the minimum salary for most executive, administrative and professional exempt employees from $684 per week to $844 per week (i.e., from $35,568 per year to $43,888 per year) starting July 1, 2024. Beginning January 1, 2025, the minimum salary will increase to $1,128 per week (i.e., $58,656 per year).
- Increases the minimum total annual compensation for highly compensated employees (HCEs) from $107,432 per year to $132,964 per year (including at least $844 per week paid on a salary or fee basis) starting July 1, 2024. Beginning January 1, 2025, the minimum total annual compensation required for HCEs will increase to $151,164 per year (including at least $1,128 per week paid on a salary or fee basis).
- Updates to these salary and total annual compensation thresholds will occur every three years starting July 1, 2027, based on current earnings data.
This final rule is being challenged in court, and it remains uncertain whether a court ruling on the legal challenges will be made before the effective date of the rule (i.e., July 1, 2024). Consequently, employers should prepare for compliance with the rule now. Specifically, employers will need to consider whether to increase an applicable exempt employee’s salary to meet the increased threshold(s) to remain exempt or reclassify such employee as non-exempt. If employers decide to reclassify exempt employees as non-exempt to avoid paying the increased threshold(s), such employees will become entitled to receive the minimum wage for all hours worked plus overtime pay generally at a rate not less than one and one-half times the regular rate of pay for all hours worked over 40 in a workweek. Employees who are reclassified as non-exempt will need to track and record all time worked, and employers should consider training them on timekeeping policies, such as seeking approval to work overtime and the prohibition from working “off the clock.” Employers should also review their employee benefit plans to see if they will be affected by any changes, and review and evaluate whether they should revise personnel documents, agreements, and policies to reflect any changes.
Employers should consult with employment counsel for guidance on how to comply with this final rule in a manner that best suits their financial and business needs.
