Starting July 1, 2024, employers must satisfy a higher salary threshold in order to consider employees as exempt from Fair Labor Standards Act (FLSA) overtime rules.
Employees are exempt from the Fair Labor Standards Act’s minimum wage and overtime protections if they are employed in a bona fide executive, administrative, or professional capacity, as those terms are defined in the Department of Labor (DOL) regulations at 29 CFR part 541. To fall within the EAP exemption, an employee generally must meet three tests:
be paid a salary, meaning that they are paid a predetermined and fixed amount that is not subject to reduction because of variations in the quality or quantity of work performed;
be paid at least a specified weekly salary level; and
primarily perform executive, administrative, or professional duties, as provided in the Department’s regulations.
The Department’s regulations also provide an alternative test for certain highly compensated employees who are paid a salary, earn above a higher total annual compensation level, and satisfy a minimal duties test.
Changes in the final rule include:
An increase to the salary level effective July 1, 2024, from $684 to $844 per week, or $43,888 annually for a full-year worker.
An increase to the salary level effective January 1, 2025, from $844 to $1,128 per week, or $58,656 annually for a full-year worker.
An increase to the total annual compensation requirement for highly compensated employees (HCE) effective July 1 to $132,964 and January 1 to $151,164 (Note: this rarely, if ever, is applied to school employees).
An automatic update to the salary levels July 1, 2027, and every three years thereafter.
The standard salary level for the “white collar” exemptions under the FLSA at $844/week as of July 1, 2024 (up from the current $684/week). The weekly salary requirement for white collar exempt employees will then increase to $1,128/week on January 1, 2025. This represents an almost 65% increase in the minimum exempt salary threshold by January 1.
It is important to note that paying the minimum salary alone does not establish that an employee is properly classified as exempt. Rather, white collar exempt employees must also satisfy the relevant “duties test” under the FLSA, the content of which remains unchanged by the final rule.
The final rule also increases the total annual compensation threshold required for an employee to qualify for the FLSA’s “highly compensated employee” exemption (HCE). As of July 1, the annual total compensation requirement for the HCE exemption rises to $132,964/year (up from $107,432/year). The HCE requirement further rises to $151,164/year on January 1, 2025. This represents more than a 40% increase by January.
While the final rule affects a large portion of the U.S. workforce, the DOL regulations remain unchanged for the earnings thresholds for white collar exempt employees in U.S. territories, the motion picture industry, and computer employees. Also unchanged are the treatment of bonuses for the purposes of satisfying the compensation threshold. Employers may use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the standard salary test requirements for white collar employees, so long as the bonuses are paid at least annually.
Additionally, employers may use nondiscretionary bonuses and incentive payments earned during a 52-week period for calculating the compensation threshold for the HCE exemption, so long as they are not used to satisfy the weekly standard salary level portion of the exemption test.
At least 4 million workers are expected to be impacted by the final rule by 2025.
Should you have any questions or concerns about the Legal Issues addressed in this blog post, please reach out to Derek Saunders, Keith Strahan, or Richard Armstrong of our firm, shown here: https://lfbrown.law/our-team
Comments