On April 23, 2024, the United States Department of Labor (“DOL”) issued its final rule (here) increasing the salary level for certain professional employees to be properly classified as exempt from federal overtime requirements under the Fair Labor Standards Act (“FLSA”). Starting July 1, 2024, the final rule sets the standard salary level for executive, administrative and professional exempt employees under the FLSA at $844 per week. This weekly salary standard will automatically increase to $1,128 on January 1, 2025. Under this same rule, the annual compensation threshold for the highly compensated employee exemption will increase to $132,964 on July 1, 2024, and then again automatically increase to $151,164 on January 1, 2025.
The Fair Labor Standards Act
The FLSA is the federal wage and hour law. It generally requires covered employers to pay employees a minimum wage as well as overtime pay to employees who work more than 40 hours in a 7-day workweek at a rate of at least 1.5 times an employee’s regular rate of pay. The FLSA exempts certain employees from its overtime requirements, provided the requirements of one of the FLSA’s specific exemptions are satisfied. Paying an employee on a “salary basis” alone does not, by itself, render an employee properly classified as exempt. Rather, exempt employees must also generally be performing a particular type of work to be properly classified as exempt. Executive, administrative and professional employees (so-called “white collar professionals”) and highly compensated employees (“HCE’s”), in addition to being paid a minimum salary, must also satisfy the relevant “duties test” under the FLSA. The new rule does not change the content of the applicable white collar exemption “duties tests.” Rather, the new rule focuses on the salary and compensation thresholds for these exempt employees.
Current Salary and Compensation Thresholds
The current salary threshold for executive, administrative, and professional employees is $684 per week. The current threshold for highly compensated employees is $107,432 per year.
The new rule represents the first increase to the salary levels since January 1, 2020, when the weekly salary increased from $455 per week to $684 per week and the highly-compensated compensation threshold increased from $100,000 to $107,432. The $455 salary level and the $100,000 minimum annual compensation threshold had been set in 2004 and had remained unchanged for 16 years.
Revised Salary and Compensation Thresholds
The new rule provides for three main changes to the FLSA exempt rules:
The new rule increases the salary for white collar exempt employees from $684 per week to $844 per week effective July 1, 2024, and $1,128 per week effective January 1, 2025;
- The new rule increases the minimum total compensation threshold for highly compensated exempt employees from $107,432 to $132,964 effective July 1, 2024, and to $151,164 effective January 1, 2025; and
- The new rule automatically updates the salary levels beginning July 1, 2027, and every three years thereafter, using then-current wage date to determine the increases.
The new rule represents an almost 65% increase in the minimum exempt salary threshold by January 1, 2025 and an increase of almost 40% in the minimum HCE compensation threshold.
According to the DOL, at least 4 million workers are expected to be impacted by the final rule by 2025.
Next Steps for Employers
While legal challenges are likely, employers should not wait to prepare for compliance with the rule’s requirements. The new rule is set to take effect on July 1, 2024, which is little more than one month from now. In preparation for the rule’s imminent changes, now is a good time for all employers with salaried workers to consider taking the following steps:
- Audit the exempt status and salaries for all employees to ensure compliance with the DOL’s final rule and with the exempt requirements overall.
- Decide if the company will increase the salaries of any exempt employees who will no longer satisfy the minimum salary thresholds as of July 1, 2024 or January 1, 2025 or whether the company will alternatively reclassify certain employees as nonexempt and overtime eligible.
- If the company elects to increase salaries or reclassify employees from exempt to non-exempt, companies should take care to comply with any applicable state law notice requirements, such as in New Hampshire, and document the change in writing with the employee, have the employee sign off on the acknowledgement, and place the acknowledgment in their personnel file.
- If any changes are required, be sure to plan the specific timing in light of the July 1st deadline, which is a Monday and may be mid-pay period for many employers.
Please contact any member of the McLane Middleton Employment Law Practice Group for further guidance on the new rule.