The U.S. Department of Labor (DOL) announced a finalized rule on April 23, 2024, increasing the minimum compensation levels for the so-called "white collar" exemptions to the federal Fair Labor Standards Act’s (FLSA) overtime premium pay requirements in 29 CFR Part 541. The final rule follows relatively quickly on a proposal issued by the DOL on Sept. 8, 2023. The rule will be phased in over two dates. There will be a more moderate increase of the minimum salary thresholds on July 1, 2024, followed by a larger increase on Jan. 1, 2025.

The rule increases the minimum salary threshold to qualify for the "white collar" or "executive, administrative, and professional employee" exemptions to overtime. The current threshold is $684 per week ($35,568 annualized). The increase will occur in two phases:

• on July 1, 2024, the threshold will rise to $844 per week ($43,888 annualized)
• on Jan. 1, 2025, the threshold will rise further to $1,128 per week ($58,656 annualized)

This last number is higher than the proposed rule’s threshold of $1,059 per week ($55,068 annualized) due to newer salary-index data.

The rule also increases the minimum annualized salary threshold to qualify for the white-collar highly compensated employee (HCE) exemption. The current threshold for HCE employees is $107,432 per year. These increases will follow the same pattern:

• on July 1, 2024, the threshold will rise to $132,964 per year
• on Jan. 1, 2025, the threshold will rise further to $151,164 per year

The 2025 salary thresholds will automatically be adjusted every three years based on salary data from the U.S. Bureau of Labor Statistics, so the minimums will likely continue to increase. The first such automatic update will occur on July 1, 2027.

The rule does not impact the "duties" portion of the executive, administrative and professional exemption tests. Employees who meet the new minimum pay requirements must also meet all other requirements of the FLSA exemptions in order for one to apply. Some states, such as California, already have higher minimum-salary requirements to qualify for exempt status, and those higher thresholds will continue to apply to employees in those states.

The new FLSA minimum-salary increases are expected to impact 4 million workers, potentially rendering them misclassified as exempt, unless the employer raises their pay to meet the new requirements or reclassifies the workers as nonexempt. All employers should assess the current exemption status of their workforce to help ensure that all workers presently classified as exempt will still qualify under the new criteria. The rule change may also present a good opportunity for employers to conduct comprehensive internal audits of job duties and exempt status to help ensure all employees are properly classified.