On April 23, 2024, the US Department of Labor (DOL) announced its final rule Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Computer and Outside Sales Employees—commonly referred to as the white collar exemptions under the Fair Labor Standards Act (FLSA). This rule, which is set to become effective on July 1, 2024, increases the salary thresholds for these exemptions and includes a mechanism for automatically adjusting the salary thresholds every three years. While the rule may face court challenges, employers would be wise to prepare for compliance now.

The FLSA requires that employers pay employees time and a half for all hours worked in excess of 40 hours in a workweek unless the employer can show that the employee fits an overtime exemption. The most common exemptions are the white collar exemptions for employees who fit the definitions of executive, professional, or administrative employees. Each of these categories has a duties component and a salary component. In order to be “salaried,” an employee must be paid a fixed amount for each workweek, and that fixed amount must be at or above a certain threshold.

Initial Salary Threshold Increases

Automatic Salary Threshold Adjustment Every Three Years

Section 541.607 of the new rule requires the DOL to automatically adjust the salary thresholds every three years, starting on July 1, 2027, following the methodology outlined in Sections 541.600(a) and 541.601(a). This means:

• The salary threshold for the professional, executive, and administrative overtime exemptions must be adjusted to reflect the 35^th percentile of weekly earnings of full-time non-hourly workers in the lowest-wage census region.
• The total annual compensation for the highly compensated employee exemption must be adjusted to reflect the 85^th percentile of full-time non-hourly workers nationally.

Potential Court Challenges to New Rule

There will likely be court challenges to the new rule. This was the case in 2016, when the DOL issued a similar rule that included a significant salary threshold increase and a mechanism to automatically adjust the salary threshold every three years. The 2016 rule was enjoined by a federal court in Texas, and the DOL formally rescinded the 2016 rule when it introduced a revised rule in 2019 that included a one-time increase to the salary threshold. While there was a court challenge to the 2019 rule, the rule was not enjoined and took effect on January 1, 2020, as scheduled.

What Should Employers Do?

Employers should be prepared to comply with the new overtime regulations in advance of the July 1 effective date. Employers with exempt professional, executive, or administrative employees currently paid a weekly salary below this new salary threshold will have to either increase those salaries to meet the new threshold or pay the affected employees overtime. Similarly, employers with exempt highly compensated employees paid a total annual compensation below the new threshold will have to either increase the total annual compensation to meet the new threshold or pay the affected employees overtime.

This is a great opportunity for employers to work with their counsel to review their compliance with the FLSA and state and local overtime exemption rules as well as examine their overall compliance with applicable wage and hour laws.

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