Over the course of the past seven years, the U.S. Department of Labor has made repeated attempts to increase the number of exempt American employees who are eligible for overtime under the Fair Labor Standards Act (FLSA) — some successful, some not. Today, April 23, 2024, the Department of Labor has announced a final rule regarding the salary threshold required to exempt a salaried executive, administrative, or professional employee from federal overtime pay requirements.  It is projected that approximately four million more American workers will be eligible for overtime under this new rule.

New rule increases threshold and adds automatic updates

Just today, the DOL issued a final rule that raises the salary threshold for exempt employees once again. Under the newly issued rule, effective July 1, 2024, the FLSA regulations standard salary level for white collar exempt workers would increase from $684 per week to $844 per week ($43,888 per year). Effective January 1, 2025, the FLSA regulations standard salary level for white collar exempt workers would increase again from $844 per week to $1,128 per week ($58,656 per year). Starting July 1, 2027, salary thresholds will update every three years by applying up-to-date wage data to determine the new salary levels. This means that employers would need to monitor changes in salary threshold requirements and regularly review whether employees are properly classified as exempt.

Additionally, the final rule increases the total annual compensation requirement for highly compensated employees from $107,432 per year to $132,964 per year effective July 1, 2024. Effective January 1, 2025, the total annual compensation requirement for highly compensated employees will increase to $151,164. The highly compensated employee exemption provides an employee is exempt from the FLSA’s overtime requirements if they are paid the requisite salary threshold, perform non-manual labor, and perform at least one of the job duties required to meet the administrative, executive, or professional exemption. Essentially, this allows employers to not pay overtime to employees who are highly compensated even if the employees might not meet all the job duty requirements to fall into the administrative, executive, or professional exemption. Effective July 1, 2027, the salary threshold for highly compensated employees will be updated by applying up-to-date wage data to determine the new salary levels.

Employer next steps

Like past attempts to raise the salary threshold for white collar workers, it is expected that this new rule will face legal challenges. Unfortunately, these challenges will take time, so employers need to be ready to implement changes effective July 1, 2024. Employers should first review their exempt positions to see which positions will be impacted by this increased salary threshold. Once that analysis is completed, employers should then consider whether they plan to raise the salaries for impacted workers to keep affected positions exempt, or to re-classify the affected positions as non-exempt.