The U.S. Department of Labor (DOL) recently released a final rule sharply increasing the minimum salary thresholds for the “white-collar” overtime exemptions under the federal Fair Labor Standards Act (FLSA) applicable to administrative, executive, professional and highly compensated employees.
The FLSA final rule requires that most employees are paid the federal minimum wage and overtime pay for all hours worked over 40 in a workweek. Despite this general premise, the FLSA exempts several categories of employees from the overtime requirements of the Act, including the above-referenced categories of white-collar employees. Generally, in order for employees to qualify for exemption they must meet three tests – (1) the “salary basis” test, (2) the job “duties” test and (3) the “salary threshold” test. In other words, employees must perform certain job duties, be paid on a salary basis, and earn a minimum amount in order for the employer to properly categorize them as exempt from the FLSA’s overtime requirements. The DOL’s final rule impacts the “salary threshold” test, but leaves the “salary basis” and job “duties” tests untouched.
The current FLSA salary threshold for administrative, executive and professional employees is $684 per week ($35,568 per year). The threshold for highly compensated employees is currently $107,432 per year.
Under the DOL’s final rule, the minimum salary threshold for administrative, executive and professional employees will rise to $844 per week (equivalent of $43,888 per year) on July 1, 2024. That threshold will go up to $1,128 per week (equivalent of $58,656 per year) on January 1, 2025. For highly compensated employees, the minimum annual compensation will rise to $132,964 per year on July 1, 2024, and then to $151,164 per year on January 1, 2025.
The final rule reflects an increase from the figures initially previewed in the DOL’s proposed rule published in August of 2023. The rule also imposes a triennial automatic update to these thresholds, which the DOL states is designed to provide employers with a more surefire timeframe in looking for future adjustments. Accordingly, beginning July 1, 2027, and every three years moving forward, these salary thresholds will see changes and very likely, an increase.
The DOL’s rule is likely to face legal challenges in the courts, which could impact whether and when the rule becomes effective. Nevertheless, employers should prepare to comply with the new rule and closely monitor the status of any resulting litigation.
Businesses should also remember that many states impose their own duties tests and/or minimum salary thresholds. Case in point, New York requires a higher salary threshold, as compared to the FLSA, to satisfy its executive and administrative exemptions. The DOL’s rule only impacts the minimum salary thresholds under the FLSA. Employers should keep an eye out for relevant changes in state law that impact exempt status questions.
