On April 23, 2024, the Department of Labor announced its new overtime rule, “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees.”
Effective July 1, 2024, an executive, professional, or administrative employee must receive a salary equivalent to $43,888 per year in order to be classified as exempt. This income limit will increase to $58,656 on January 1, 2025.
This change raises the salary thresholds for exempt employees, entitling many employees to overtime pay who were previously exempt from overtime under the prior rule. Employers should have a firm understanding of these changes to be able to comply with this update.
The final rule presents some critical changes to the framing of whether and when an employee may be classified as exempt from FLSA’s overtime pay requirements:
- Increased salary for “white collar” employees: The rule increases the minimum salary level from $35,568 per year ($684 per week) to $43,888 per year ($844 per week) effective July 1, 2024 and to $58,656 per year ($1,128 per week) effective January 1, 2025.
- Increased total compensation threshold for the “HCE” exemption: The rule increases the total annual compensation requirement for the highly compensation employee exemption from $107,432 to $132,964 by July 1, 2024 and to $151,164 by January 1, 2025.
- Automatic updating every three years: The rule implements an automatic update to these thresholds every three years. The Department of Labor has stated that this is to align with shifts in worker salaries and provide employers with a predictable timetable for future adjustments. The updates will begin on July 1, 2027 and then occur every three years thereafter.
The changes leave the FLSA (Fair Labor Standards Act) “duties” tests for the exemptions untouched. So, an employee generally must meet both the pay requirements and duties of at least one exemption in order to be classified as exempt.
Though scheduled to go into effect this summer, the final rule is likely to be challenged in the courts. Despite this uncertainty, the best practice is for employers to review their payroll practices, compensation systems and employee classifications before the scheduled effective date. Employers should identify employees who are likely to be affected by the July and January changes to the salary levels. Employers have a number of options to consider once they have identified employees who are likely to be affected.
If you need assistance navigating this changing landscape, please call us to discuss your situation.