On April 23, 2024, the U.S. Department of Labor (DOL) announced a final rule updating the salary threshold for employees classified as exempt. Under the Fair Labor Standards Act (FLSA), employees fall into classifications of either exempt or non-exempt from minimum wage and overtime requirements. Non-exempt employees must be paid overtime wages of 1.5 times their regular hourly rate for hours in excess of 40 per week. Employees may be exempt from minimum wage and overtime pay requirements if the terms and conditions of their employment satisfy the standards for exemption under the FLSA. In particular, employees working in an administrative, executive, or professional capacity generally fall within such exemptions if they meet the following tests:
- They are paid on a salary basis.
- They are paid not less than the specified salary level for the exemption.
- They perform exempt work as their primary duty (either administrative, executive, or professional as defined in DOL regulations).
Currently, the minimum salary level for the administrative, executive, and professional exemptions is $684 per week (equivalent to $35,568 per year). The final rule provides for significant increases to the minimum salary level in 2024 and 2025, and subsequent adjustments based on current earnings data beginning in 2027 and every three years thereafter. The increases are scheduled as follows:
- Effective July 1, 2024 – $844 per week (equivalent to $43,888 per year).
- Effective January 1, 2025 – $1,128 per week (equivalent to $58,656 per year).
- Effective July 1, 2027 (and every three years thereafter) – salary level adjusted based on a methodology tied to current earnings data.
There is also an exemption for highly compensated employees, who earn above a significantly higher compensation level and perform certain responsibilities under a less rigorous duties test. The current compensation threshold for highly compensated employees is $107,432 total annual compensation, including at least $684 per week on a salary basis. That amount will increase as follows:
- Effective July 1, 2024 – $132,964 total annual compensation (including at least $844 per week on a salary basis).
- Effective January 1, 2025 – $151,164 total annual compensation (including at least $1,128 per week on a salary basis).
- Effective July 1, 2027 (and every three years thereafter) – compensation level adjusted based on methodology tied to current earnings data.
As a result of these updates to the regulations, employers should review the compensation of employees classified as exempt to ensure they meet the new minimum salary thresholds as they go into effect. If an employer does not satisfy each component for an exemption, including paying no less than the minimum salary level, they will lose the benefit of that exemption and risk liability for unpaid overtime and misclassification of workers. The FLSA provides for significant damages beyond just the amount of unpaid overtime wages, including liquidated damages equal to the unpaid wages and plaintiff’s attorney fees. As a result, it is important for employers to identify any employees whose current salaries are below the updated threshold amounts that will be implemented beginning in a few months, and develop a plan to either increase such salaries to preserve exempt status or reclassify the employees as non-exempt and pay for any overtime hours.
For more information about the DOL’s final rule regarding increases to the salary threshold for exempt employees, and guidance for compliance and avoiding legal pitfalls, please do not hesitate to contact Russell Rendall or one of the other employment law attorneys at Weston Hurd LLP.
