The U.S. Department of Labor (DOL) announced its highly anticipated final rule, “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees" (the Final Rule), which will take effect on July 1, 2024. The Final Rule updates and revises the regulations issued under the federal Fair Labor Standards Act (FLSA), implementing the exemption from minimum wage and overtime pay requirements for executive, administrative, and professional employees including increases to the standard salary level or salary basis threshold.

The new federal salary thresholds will impact many employers in states that do not have state laws governing exempt status (e.g., New Jersey).

Salary Threshold for Exempt Employees

Federal

To qualify as an exempt executive, administrative, or professional employee under the FLSA, an employee must generally* be compensated on a salary basis at a rate per week not less than the following:

• Beginning on July 1, 2024: $844 per week ($43,888 per year); and
• Beginning on January 1, 2025: $1,128 per week ($58,656 per year).

Future updates to the salary basis threshold under the FLSA will begin on July 1, 2027, and every three years thereafter. The Final Rule calls for automatic updates beginning in 2027, taking away the need for future rulemaking to increase a stagnant salary threshold level.

The salary threshold for exempt executive, administrative, or professional employees under the FLSA through June 30, 2024, is $684 per week ($35,568 per year).

The Final Rule also increases the annual compensation threshold required for an employee to qualify as a “highly compensated employee” under the FLSA as follows:

• Beginning July 1, 2024: $132,965 per year; and
• Beginning July 1, 2025: $151,164 per year.

The annual compensation threshold for “highly compensated employees” under the FLSA, through June 30, 2024, is $107,432, which includes at least $684 per week paid on a salary or fee basis.

Employers must determine whether the new federal salary thresholds for exempt employees exceed any threshold required by state or local laws applicable to their employees.

New York State

For example, as we previously reported, effective January 1, 2024, New York State’s minimum weekly salary increased for administrative and executive employees as follows:

• $1,124.20 per week ($58,458.40 per year) for employees in New York State; and
• $1,200.00 per week ($62,400 per year) for employees who work in Nassau, Suffolk, and Westchester counties and in New York City for any size employer.

A majority of New York State will continue to adhere to the higher salary threshold requirements to consider an employee exempt.

Employers’ Next Steps

Employers should determine whether they are required to increase base salaries for employees classified as exempt to comply with the increased salary thresholds based on the final rule and/or any applicable state or local wage and hour laws or whether to reclassify such employees as non-exempt.

As a reminder, meeting the minimum salary threshold alone does not establish that an employee is properly classified as exempt from overtime requirements. As such, in conjunction with evaluating salary requirements, employers should consider taking this opportunity to also evaluate whether employees classified as exempt also meet the required duties test under the FLSA and any applicable state wage and hour law.

*Certain employees, such as doctors, lawyers, teachers, and outside sales employees, are not subject to salary tests.

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