Key Takeaways:
- The final rule increases the salary thresholds for the FLSA’s white-collar overtime exemptions from $35,568 annually to $43,888 beginning on July 1, 2024, and to $58,656 beginning on January 1, 2025.
- The final rule likewise increases the salary thresholds for the FLSA’s highly compensated employee exemption from $107,432 annually to $132,964 beginning on July 1, 2024, and $151,164 beginning on January 1, 2025.
- The final rule also provides that these salary thresholds will increase automatically every three years, beginning on July 1, 2027.
On April 23, 2024, the U.S. Department of Labor (DOL) announced its final rule increasing the salary thresholds for the Fair Labor Standards Act’s (FLSA) overtime exemptions for executive, administrative, professional, and highly compensated employees. The FLSA, among other things, requires employers to pay employees time-and-a-half for all hours worked over 40 hours during a workweek, provided that the employees do not fall within certain delineated exemptions.
The executive, administrative, and professional exemptions – otherwise known as the “white-collar” or “EAP” exemptions – exempt employees with certain duties whose salaries exceed a given threshold from the FLSA’s overtime requirements. The new rule raises those salary thresholds from $684 per week ($35,568 annually) to:
- $844 per week ($43,888 annually) beginning on July 1, 2024; and
- $1,128 per week ($58,656 annually) beginning on January 1, 2025.
The new rule also raises the salary thresholds for the FLSA’s highly compensated employee exemption – or employees who are exempt from the FLSA’s overtime requirements because of their compensation without consideration of the duties they perform – from $107,432 annually to:
- $132,964 beginning on July 1, 2024; and
- $151,164 beginning on January 1, 2025.
Finally, the new rule provides that these salary thresholds will update automatically every three years, beginning July 1, 2027. According to the DOL, the final rule will impact approximately four million workers by transferring approximately $1.5 billion from employers to employees.
Despite the final rule’s effective date of July 1, 2024, we expect the final rule will face court challenges that could delay or halt its coming into effect. In 2016, the Obama administration’s DOL published a similar final rule, increasing the salary thresholds for the FLSA’s overtime exemptions while providing for periodic automatic updates to those thresholds. That final rule was invalidated by a Texas federal court in 2017, and the Trump administration chose not to defend that rule. Of note as well, Justice Kavanaugh recently questioned whether the Department of Labor has the power at all to set salary thresholds. That opinion will likely invite a challenge to the Department of Labor’s authority to issue these regulations. Indeed, agency rulemaking has come under intensified judicial scrutiny, and the U.S. Supreme Court is set to hear several cases this term that could further erode an agency’s rulemaking abilities. Lastly, as in 2017, a change in administration during the 2024 presidential election could impact the DOL’s willingness to fight legal challenges to its final rule.
Nevertheless, employers should commence preparations to comply with the final rule beginning July 1, 2024. Employers can do so by identifying employees in their workforce who are currently exempt, but after the final rule goes into effect, may become non-exempt because of the increased salary thresholds. For those affected employees, employers should begin crafting strategies to ensure their workforce remains compliant with the FLSA, including by increasing the affected employees’ salaries to make them exempt once again, reclassifying the affected employees from exempt to non-exempt, and/or limiting overtime opportunities for the affected employees.
