Over the past seven years, the U.S. Department of Labor (DOL) has attempted to increase the number of exempt employees who are eligible for overtime under the Fair Labor Standards Act (FLSA). On April 23, 2024, the DOL announced a final rule regarding the salary threshold required to exempt a salaried executive, administrative, or professional employee from federal overtime pay requirements. It’s estimated that four million more American workers will be eligible for overtime under the new rule.
New Rule Increases Threshold, Adds Automatic Updates
Under the newly issued rule—effective July 1, 2024—the FLSA regulations’ standard salary level for white-collar exempt workers increases from $684 per week to $844 per week ($43,888 per year). Effective January 1, 2025, the level will increase again from $844 per week to $1,128 per week ($58,656 per year).
Starting July 1, 2027, salary thresholds will update every three years by applying up-to-date wage data to determine the new salary levels. This means employers will need to monitor changes in salary threshold requirements and regularly review whether employees are properly classified as exempt.
Additionally, the final rule increases the total annual compensation requirement for highly compensated employees from $107,432 per year to $132,964 per year effective July 1, 2024. Effective January 1, 2025, the total annual compensation requirement for highly compensated employees will increase to $151,164. The highly compensated employee exemption says employees are exempt from the FLSA’s overtime requirements if they’re paid the requisite salary threshold, perform nonmanual labor, and perform at least one of the job duties required to meet the administrative, executive, or professional exemption.
Essentially, this allows employers not to pay overtime to employees who are highly compensated even if they might not meet all the job duty requirements to fall into an exemption. Effective July 1, 2027, the salary threshold for highly compensated employees will be updated by applying up-to-date wage data to determine the new salary levels.
Employers’ Next Steps
Like past attempts to raise the salary threshold for white-collar workers, this new rule is expected to face legal challenges. Unfortunately, the challenges will take time, so employers should have implemented initial changes as of July 1, 2024.
You should first review your exempt positions to see which ones will be affected by the increased salary threshold. Once that analysis is completed, you should then consider whether you plan to raise the salaries for affected workers to keep the positions exempt or reclassify the positions as nonexempt.
Kristin Simpsen is an attorney in the Oklahoma City office of McAfee & Taft. She can be reached at kristin.simpsen@mcafeetaft.com.