The U.S. Department of Labor (DOL) issued its final regulations on April 23, 2024 that increase the salary threshold level necessary to exempt certain employees from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime pay requirements. By January 1, 2025, the regulations increase the salary threshold by over $23,000 from the current amount of $35,568 per year ($684 per week) to $58,656 per year ($1,128 per week).

The DOL’s Final Regulations

The DOL’s final regulations include two key components:

1. The salary threshold for executive, administrative and professional employees increases from $684 per week ($35,598 per year) as follows:

• On July 1, 2024 to $844 per week ($43,888 per year).

• On January 1, 2025 to $1,128 per week ($58,656 per year).

• Starting on July 1, 2027, every three years the salary threshold “will be updated to reflect current earning data.” According to the DOL’s comments on these final regulations, the DOL aims to set the salary threshold at the 35^th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census region, which is currently $1,128 per week in the South Census region (Alabama, Arkansas, Delaware, District of Columbia, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, and West Virginia).

• However, the above salary thresholds do not apply to teachers, medical doctors and lawyers, which is consistent with current FLSA regulations.

2. The DOL also increased the total annual compensation level to be exempt from overtime and minimum wage requirements under the FLSA’s “highly compensated employee” exemption from the current amount of $107,432 to:

• $132,964 per year effective July 1, 2024

• $151,164 per year effective January 1, 2025

• To a higher amount “to reflect current earning data” effective July 1, 2027, which will be adjusted every three years

• The final regulations also note that “[w]here the annual period covers periods during which multiple total annual compensation levels apply, the amount of total annual compensation due will be determined on a proportional basis.”

The final regulations do not change how or when an employer can count nondiscretionary bonuses and incentive payments towards a portion of the salary threshold level. Currently, under the FLSA, employers may use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new standard salary threshold level provided that such monies are paid at least annually. If an employee does not earn enough in nondiscretionary bonuses and incentive payments (including commissions) in a given 52-week period to retain his or her exempt status, the DOL also permits a “catch-up” payment at the end of the 52-week period.

Thresholds Vary by State

It is also important to remember that many states have their own salary thresholds for exempt status and these thresholds are not impacted by the DOL’s final regulations. For example, New York’s salary threshold for businesses in New York City and Nassau, Suffolk, and Westchester Country is $1,200 per week ($62,400 per year) increasing to $1,237.50 per week ($64,350 per year) on January 1, 2025. This means that in New York City and its surrounding counties, in order to classify employees as exempt under the executive/managerial or administrative exemption, the employer must pay the employee a salary of at least $1,200 per week (and $1,237.50 per week starting on January 1, 2025). Upstate New York also has a higher salary threshold of $1,124.50 per week $58,474 per year), which increases on January 1, 2025 to $1,161.65 per week ($60,405.80 per year). Similarly, a few other states have a salary threshold that exceeds the federal minimum. For example, salary thresholds in the following states exceed the current federal level, effective January 1, 2024:

• Alaska: $938.40 per week (($48,796.80 per year)
• California: $1,280 per week ($66,560 per year)
• Colorado: $1,057.69 per week ($55,000 per year)
• Washington: $1,302.40 per week ($67,724.80 per year)

Further, some states, including New York, California and Washington, do not permit employers to use non-salary remuneration, such as commissions or nondiscretionary bonuses, to satisfy the salary threshold. Therefore, it is imperative that employers work with counsel to ensure that they are paying the correct salary to exempt employees under applicable state law.

Next Steps

By July 1, 2024, employers must ensure that their executive, administrative and professional employees who they classify as exempt from overtime earn a salary of at least $844 per week ($43,888 per year). If such employees do not earn that much by July 1, 2024, there is a significant risk that such workers cannot be classified as exempt from overtime going forward. Further, employers must be mindful that by January 1, 2025, these employees must be paid a salary of at least $1,128 per week ($58,656 per year) in order to maintain their overtime exemption.

Finally, employers should remember that paying an employee more than the DOL-mandated salary threshold does not automatically exempt them from FLSA requirements and other salary laws that vary by state. Meeting the relevant job duties test is also as necessary as satisfying the applicable salary levels in determining overtime exemptions.

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