On April 23, 2024, the United States Department of Labor (DOL) announced a final rule that, effective July 1, 2024, will significantly increase the salary threshold for certain employees to be properly considered exempt from the overtime requirements of the Fair Labor Standards Act (FLSA). If these changes go into effect, an estimated 3.6 million salaried employees nationwide will become eligible for overtime pay based on their current compensation. This will require employers to make significant changes to employee classification and/or compensation to remain compliant with the law.
The FLSA generally requires that employees receive the federal minimum wage, plus an overtime premium for all hours worked over 40 in a workweek. However, the FLSA exempts several categories of employees from the overtime-pay requirement, including salaried “white collar” employees who work in a bona fide executive, administrative, or professional capacity. If a salaried employee is misclassified as exempt from the FLSA’s overtime requirements, the employer may be liable for unpaid overtime compensation for any hours the employee works over 40 in a workweek, in addition to other damages.
To be exempt as a “white collar” employee, an employee must: (1) meet a specified duties test, (2) be paid on a salary basis, and (3) be paid at least a minimum per-week salary. Currently, salaried employees who otherwise meet the criteria for exempt classification must make at least $684 per week ($35,568 annualized). The DOL’s new rule will raise the weekly salary threshold to $844 per week ($43,888 annualized) as of July 1, 2024. The salary threshold will increase again on January 1, 2025, to $1,128 per week ($58,656 annualized).
The FLSA also provides for an overtime exemption for “highly compensated employees,” which is available for salaried employees who make at least $107,432 per year and regularly perform job duties inherent to at least one of the above-described “white collar” exemptions. The new rule will raise the annual threshold for these employees to at least $132,964 on July 1, 2024, and to $151,164 on January 1, 2025. The new salary thresholds will be updated every three years using wage census data to ensure alignment with prevailing market conditions.
Importantly, the new rule has not yet taken effect. It will be published in the Federal Register and become effective on July 1, 2024. Legal challenges to the rule will almost certainly ensue, but employers should not count on litigation to relieve their obligation to remain compliant with the law.
To better understand how this could impact your business, you should work closely with competent employment counsel to assess the need to review your current pay practices, identify any potentially affected salaried employees, and determine whether changes are needed to those employees’ compensation or classifications. If you have questions concerning this new rule or any other employment-related laws or regulations, please contact one of our employment attorneys by calling (501) 375-9131.