On April 23, 2024, the U.S. Department of Labor released a final rule that raises the salary threshold to qualify for certain overtime exemptions under the Fair Labor Standards Act.
EAP Exemption
The Fair Labor Standards Act ("FLSA") generally requires an employer to pay an employee time and a half for all hours worked in excess of 40 hours in one work week. Employees who are employed in a bona fide executive, administrative, or professional capacity ("EAP" or "white-collar" exemption) are exempt from minimum wage and overtime protections. To fall within the EAP exemption, an employee must generally meet three tests:
- Be paid a salary;
- Be paid at least a specified weekly salary level; and
- Primarily perform executive, administrative, or professional duties, as provided in the DOL's regulations.
The DOL's final overtime rule increases the standard salary level for white collar exempt employees in two stages:
- On July 1, 2024, the standard level will increase from $684 to $844 per week ($43,888 annually).
- On January 1, 2025, the standard level will increase to $1,128 per week ($58,656 annually).
HCE Exemption
Employees who are paid a salary, earn above a higher total annual compensation level, and satisfy a minimal duties test fall within the exemption for highly compensated employees ("HCE"). The final rules also increases the annual total compensation for the HCE exemption from $107,432 to $151,164 in two stages:
- On July 1, 2024, the HCE level will increase from $107,432 to $132,964 per year.
- On January 1, 2025, the HCE level will increase to $151,164 per year.
The final rule includes a mechanism for automatically updating these salary and compensation levels every three years based on then-current earnings data. The first automatic update will occur on July 1, 2027.
The final rule does not change the current rule which allows employers to use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the standard for special salary levels for the exemptions.
Although the final rule will likely face legal challenges, employers should consider adjusting compensation structures for exempt employees earning more than $35,564 per year but less than the new EAP exemption minimum of $58,656 per year. Additionally, employers may need to consider reclassifying employees who do not meet the new minimum salary thresholds.
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