Key Takeaways:
- The final rule increases the salary thresholds for the FLSA's white-collar overtime exemptions from $35,568 annually to $43,888 beginning on July 1, 2024, and to $58,656 beginning on January 1, 2025.
- The final rule likewise increases the salary thresholds for the FLSA's highly compensated employee exemption from $107,432 annually to $132,964 beginning on July 1, 2024, and $151,164 beginning on January 1, 2025.
- The final rule also provides that these salary thresholds will increase automatically every three years, beginning on July 1, 2027.
On April 23, 2024, the U.S. Department of Labor (DOL) announced
its final rule increasing the salary thresholds for the Fair Labor
Standards Act's (FLSA) overtime exemptions for executive,
administrative, professional, and highly compensated employees. The
FLSA, among other things, requires employers to pay employees
time-and-a-half for all hours worked over 40 hours during a
workweek, provided that the employees do not fall within certain
delineated exemptions.
The executive, administrative, and professional exemptions –
otherwise known as the "white-collar" or "EAP"
exemptions – exempt employees with certain duties whose
salaries exceed a given threshold from the FLSA's overtime
requirements. The new rule raises those salary thresholds from $684
per week ($35,568 annually) to:
- $844 per week ($43,888 annually) beginning on July 1, 2024; and
- $1,128 per week ($58,656 annually) beginning on January 1, 2025.
The new rule also raises the salary thresholds for the FLSA's highly compensated employee exemption – or employees who are exempt from the FLSA's overtime requirements because of their compensation without consideration of the duties they perform – from $107,432 annually to:
- $132,964 beginning on July 1, 2024; and
- $151,164 beginning on January 1, 2025.
Finally, the new rule provides that these salary thresholds will
update automatically every three years, beginning July 1, 2027.
According to the DOL, the final rule will impact approximately four
million workers by transferring approximately $1.5 billion from
employers to employees.
Despite the final rule's effective date of July 1, 2024, we
expect the final rule will face court challenges that could delay
or halt its coming into effect. In 2016, the Obama
administration's DOL published a similar final rule, increasing
the salary thresholds for the FLSA's overtime exemptions while
providing for periodic automatic updates to those thresholds. That
final rule was invalidated by a Texas federal court in 2017, and
the Trump administration chose not to defend that rule. Of note as
well, Justice Kavanaugh recently questioned whether the Department
of Labor has the power at all to set salary thresholds. That
opinion will likely invite a challenge to the Department of
Labor's authority to issue these regulations. Indeed, agency
rulemaking has come under intensified judicial scrutiny, and the
U.S. Supreme Court is set to hear several cases this term that
could further erode an agency's rulemaking abilities. Lastly,
as in 2017, a change in administration during the 2024 presidential
election could impact the DOL's willingness to fight legal
challenges to its final rule.
Nevertheless, employers should commence preparations to comply with
the final rule beginning July 1, 2024. Employers can do so by
identifying employees in their workforce who are currently exempt,
but after the final rule goes into effect, may become non-exempt
because of the increased salary thresholds. For those affected
employees, employers should begin crafting strategies to ensure
their workforce remains compliant with the FLSA, including by
increasing the affected employees' salaries to make them exempt
once again, reclassifying the affected employees from exempt to
non-exempt, and/or limiting overtime opportunities for the affected
employees.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.