U.S. DOL Issues Final Rule Increasing Salary Thresholds for Certain FLSA Overtime Exemptions

On April 23, 2024, the Department of Labor (DOL) released a final rule that raises the salary thresholds for certain overtime exemptions under the federal Fair Labor Standards Act (FLSA). The rule is expected to result in about 4 million employees to lose their exempt status under the FLSA. Employers must therefore either raise the salaries paid to such employees to maintain the exemption or reclassify their positions to non-exempt, paying them an hourly wage and overtime, where applicable.

What is the FLSA? The FLSA generally requires covered employers to pay employees a minimum wage and, for employees who work more than 40 hours in a week, overtime pay of at least 1.5 times an employee’s regular rate of pay.

What overtime exemptions are at issue here? The FLSA exempts certain employees from its overtime requirements. The new rule affects those who are employed in positions meeting the requirements for the executive, administrative, professional, and highly compensated employee exemptions. In addition to meeting other requirements as set forth in the FLSA and implementing regulations, the amount employees are paid must meet certain thresholds.

What are the current salary thresholds for FLSA exemptions? The salary threshold for executive, administrative, and professional employees is currently $684 per week, which annualizes to $35,568 per year. The threshold for highly compensated employees is currently $107,432 per year. Note that these requirements are for the FLSA only and that many states require employers also to comply with more stringent state-law exemptions.

What are the changes to the salary thresholds, and when will they go into effect? The effective date for the final rule is July 1, 2024, but certain sections will not apply until January 1, 2025:

• Beginning July 1, 2024, the final rule calls for an increase in the threshold for bona fide executive, administrative, and professional employees to $844 per week, which annualizes to $43,888 per year. The final rule will raise the annual compensation threshold for highly compensated employees to $132,964 per year.
• Beginning January 1, 2025, the final rule will raise the threshold for bona fide executive, administrative, and professional employees to $1,128 per week, which annualizes to $58,656 per year. This sets the standard salary level at the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region. The final rule will raise the annual compensation threshold for highly compensated employees to $151,164 per year. This sets the total annual compensation threshold at the annualized weekly earnings of the 85th percentile of full-time salaried workers nationally.
• Beginning July 1, 2027, and every three years thereafter, the salary thresholds will automatically update, using the methodology in effect at the time of each update.

We are continuing to monitor the implementation of the final rule. Please do not hesitate to contact us if you have any questions or concerns about the rule.