Increases to the Salary Threshold

In a 2024 Final Rule, the Department of Labor (DOL) announced that it would be increasing in two phases the salary threshold for employees to be exempt from overtime.  Specifically: 

• As of July 1, 2024, the threshold increased to $844 per week/$43,888 annualized, up from the current threshold of $684 per week/$35,568 annualized; and
• As of January 1, 2025, the threshold will increase again to $1,128 per week/$58,656 annualized.

Practically speaking, what do these increases mean for independent schools? 

Overview of the Fair Labor Standards Act

Among other things, the federal Fair Labor Standards Act provides that certain employees must be paid at least the federal minimum wage and overtime for time worked in excess of 40 hours in a given workweek.  The default rule is that all employees are entitled to minimum wage and overtime unless they are fall within one of the specified exemptions.  While the FLSA provides for a number of various exemptions, those most commonly applicable in independent schools are the Executive, Administrative, and Professional (EAP) exemption and the Highly Compensated Employee (HCE) exemption. 

Generally, these exemptions require that a school be able to establish that the employee (1) is paid at least the minimum weekly salary, (2) is paid on a salary basis, and (3) meets the duties test for the respective exemption.  To be considered exempt, an employee must meet all of these requirements, not just the salary basis.  As it relates to the update to 2024 Final Rule, increases have gone into effect and will continue to be in effect for the minimum salary employees must be paid. 

Schools will want to recall that, under the professional exemption, teachers are generally considered exempt solely on the basis of their duties.  In other words, a teacher is exempt if their primary duty is teaching, tutoring, instructing, or lecturing to impart knowledge, and if they are performing that duty as an employee of an educational establishment.  When a teacher’s duties meet this requirement, the salary level and salary basis tests do not apply. 

Impact on Independent Schools and Common Issues

Because an independent school’s faculty members are not subject to the salary basis, the 2024 Final Rule will not have an impact on those individuals.  However, the 2024 Final Rule does increase the salary basis for employees working in other capacities for independent schools, such as the head of school, chief financial officer, or division heads.

In addition, the 2024 Final Rule presents a good opportunity for schools to evaluate all of their employee’s current classifications, to ensure that the position still meets the requirements of the duties test for the particular exemption claimed: 

• Duties Test for the Executive Exemption: For executive employees to be considered exempt, their primary duty must be managing the enterprise or a customarily recognized department or unit. Executive employees must customarily and regularly direct the work of two or more fulltime employees, and either they have the authority to hire or fire, or their recommendations about hiring, firing, and other status changes are given particular weight.
• Duties Test for the Administrative Exemption: For administrative employees to be considered exempt, their primary duty must be the performance of office or non-manual work that is directly related to management or business operations. Particularly important to note is that, to be exempt, an administrative employee’s primary duties must include the exercise of discretion and independent judgment with respect to matters of significance. It is important to understand whether an administrative employee can actually make important decisions within their area of expertise. The fact that an administrative employee is paid on a salary basis does not necessarily mean that they are exempt.
• Duties Test for the Professional Exemption (for non-teaching employees):For the professional exemption for non-teaching employees, the employee’s primary duty must be the performance of work requiring advanced knowledge (which is predominantly intellectual in character) and requires the consistent exercise of discretion and judgment. The advanced knowledge must be in a field of science or learning, customarily acquired by a prolonged course of specialized intellectual instruction. Fields of science or learning include, as applicable for independent schools, medicine.

Careful analysis of an employee’s actual duties performed against the requirements of the respective duties test will help independent schools ensure that their employees are properly classified and mitigate the risk of claims of failure to pay overtime.