DOL’s Final Overtime Rule Raises Salary Thresholds for Exempt Employees
On April 23, 2024, the Department of Labor (“DOL”) released a final rule raising the salary thresholds for certain overtime exemptions under the Fair Labor Standards Act (“FLSA”). Baird Holm previously reported on the DOL’s proposed rule, which was introduced on August 30, 2023.
All employers should be familiar with the FLSA, which generally requires covered employers to pay employees a minimum wage, and provides for overtime pay at the rate of 1.5 times the employee’s regular rate of pay for employees who work more than 40 hours in a week. There are certain exemptions under the FLSA’s overtime requirements, including exemptions for executive, administrative, professional, and highly compensated employees.
The DOL’s new rule specifically impacts the salary level for the overtime exemptions for executive, administrative, and professional employees (so called “white collar” or “EAP” employees) and for highly compensated employees. The minimum weekly salary level to qualify for an exemption would be increased in phases:
- By July 1, 2024: $844 per week ($43,888 annually) for standard salary level of EAP exempt employees, or $132,964 annually for the highly compensated employee exemption.
- By January 1, 2025: $1,128 per week ($58,656 annually) for standard salary level of EAP exempt employees, or $151,164 annually for the highly compensated employee exemption.
After the completion of those phases, beginning July 1, 2027 additional salary increases are scheduled to automatically occur every three years.
Increases to the salary requirement for FLSA overtime exemptions are not new, but the DOL’s new final rule is a much bigger shift than what employers have previously experienced.[1] Currently, the minimum salary level is $684 per week ($35,568 annually) for EAP employees and $107,432 per year for the highly compensated employee. This could mean significant changes to exemption classifications or wages to exempt employees.
The final rule is effective on July 1, 2024, and will likely face legal challenges. Employers should nevertheless familiarize themselves with the DOL’s new salary standards and explore key compliance considerations. Employers may need to consider adjusting compensation for employees or risk losing exemption status for certain positions.
This is a good time for employers to analyze current FLSA classifications for compliance across the entire company or organization. Baird Holm attorneys are equipped to help evaluate positions under both the existing FLSA standard and the new standard.
[1] As earlier reported, a similar rule introduced in 2016 under the Obama Administration aimed to implement similar salary level increases. This rule was challenged by the DOL and blocked by a Texas court in November 2016, merely eight days before it was to take effect. The rule was later withdrawn under the Trump Administration. The Trump Administration raised the salary requirement in 2019 for these exemptions, but much more modestly.