The US Department of Labor (DOL) released its final rule to increase the federal salary threshold for exemption under the Fair Labor Standards Act (FLSA) on April 23, 2024. DOL had previously issued On August 30, 2023, the US Department of Labor (DOL) released a Notice of Proposed Rulemaking (NPRM) (published in the Federal Register on September 8, 2023) to increase the federal salary threshold for exemption under the Fair Labor Standards Act (FLSA). The comments period closed on November 7, 2023. On April 23, 2024, the DOL released its Final Rule.

The FLSA provides, among other things, wage and hour protections for employees but allows employees to be exempt from minimum wage and overtime requirements if the employees perform certain duties and are paid a salary that meets or exceeds a stated threshold. Employees who perform duties under the “white collar” exemptions, namely the executive, administrative, professional, and highly compensated employee exemptions, may qualify for exemption from minimum wage and overtime requirement if they are paid on a salary basis at or above the salary threshold. Many states have similar overtime rules and exemptions and the salary thresholds under those rules may be higher than under the Federal rule.

The last increase in the federal salary threshold was made on September 24, 2019, when salary requirements increased from $455 per week ($23,660 annualized) to $684 per week ($35,568 annualized) and the highly compensated employee exemption increased from $100,000 to $107,432 per year. Under the Final Rule release today, on July 1, 2024 the salary threshold will increase to $844 per week ($43,888 annualized) and then increase again on January 1, 2025 to $1,128 per week ($58,565 annualized). Under the NPRM, the proposed salary threshold was $1,059 per week ($55,068 annualized). The highly compensated employee salary threshold will increase to $132,964 on July 1, 2024 and to $151,164 on January 1, 2025. Under the NPRM, the proposed highly compensated employee salary threshold was $143,988 per year.

In its NPRM, the DOL said that the increase would “restore and extend overtime protections to 3.6 million salaried workers” in the U.S. After numerous requests by the public to extend the comments period, the DOL announced on October 10, 2023 that it would not grant an extension because the 60-day period was “reasonable and adequate” for the public to comment on this nearly $20,000 annual bump up in the salary threshold, which would admittedly impact 3.6 million workers.

New salary thresholds were also extended to four US territories that are subject to the federal minimum wage: Puerto Rico, Guam, the US Virgin Islands, and the Commonwealth of the Northern Mariana Islands.

The DOL’s Final Rule may not impact exempt employees in certain states where the state salary threshold for exemption is already higher than the federal requirement, such as California, Colorado, New York, and Washington.

Importantly, the Final Rule has put in place a mechanism for regular updates to the salary threshold, which will occur automatically every three years, beginning on July 1, 2027. The DOL has adjusted the manner for calculating the standard salary to be used in the update and provided the manner in which the DOL will publish advanced notice of the update to thresholds, as well as any delay needed, thus satisfying the notice and comment period requirements under the Administrative Procedure Act.

For the rest of the 3.6 million employees, however, employers should review their workforce and identify those employees currently classified as exempt whose salaries will not meet the new required minimum thresholds. Employers may opt to increase the salary to meet the threshold or, reclassify individuals as non- exempt where salaries will remain below the applicable threshold. Employers should consider providing timekeeping training to employees who are converted to non-exempt and who may not be in the practice of tracking their worktime, including time spent on activities after normal working hours such as responding to emails and text messages. Further, employers should consider how these now-non-exempt employees’ other compensation and benefits could be impacted. For example, any non-discretionary bonuses these employees earn would now be included in their regular rate of pay for calculating overtime rates.

Finally, it is possible that interested parties will challenge the DOL’s Final Rule in court, particularly as the rule relates to the automatic increases. Therefore, while it is crucial that employers begin to make plans to comply with the DOL’s Final Rule, employers should also monitor any developments related to the Final Rule between now and July 1, 2024.

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