On April 23, 2024, the U.S. Department of Labor issued a final rule raising the salary thresholds for employees qualifying for the "white-collar" and "highly compensated" exemptions. If the rule takes effect (more on that later), employers may need to raise certain employees' salaries or reclassify them as eligible for overtime.
White-collar Exemption.
The FLSA generally requires an employer to pay an employee overtime (i.e., time and one-half the regular rate of pay) if the employee works more than 40 hours a week. However, the FLSA exempts every employee employed in a bona fide executive, administrative, or professional capacity from the overtime requirement. These exemptions are often collectively referred to as "white-collar” exemptions. To qualify for the white-collar exemption, an employee must satisfy three criteria: being paid on a “salary basis”, the employee's primary duty is performing exempt work, and the employee must earn a minimum salary threshold.
Salary Threshold Changes.
The minimum salary threshold is $684 per week ($35,568 per year). But the final rule introduces a phased increase in the minimum salary threshold:
Effective July 1, 2024, the minimum salary threshold will rise to $844 per week ($43,888 annually).
Effective January 1, 2025, the threshold will increase to $1,128 per week ($58,656 per year)
Effective July 1, 2027, and then every three years after, the minimum salary level increases based on current wage data.
Highly Compensated Salary Threshold Changes.
The FLSA regulations contain a special exemption rule for "highly compensated" employees who are paid a total annual compensation of $107,432 or more annually. The final rule includes a phased increase in the minimum salary for highly compensated employees:
Effective July 1, 2024, the high compensation minimum salary threshold will rise to $132,964 annually.
Effective January 1, 2025, the threshold will increase to $151,164 annually.
Effective July 1, 2027, and then every three years after, the high compensation minimum salary level increases based on current wage data.
Employer Decisions.
Before the July 1 and January 1 deadlines, employers should assess their salary structures and classification policies to ensure compliance with the final rule. Many employers must consider whether to increase salaries or reclassify current exempt employees. Employers must modify record-keeping requirements for those employees who will no longer qualify for exemption due to below-threshold salaries to ensure compliance with overtime requirements.
Potential Litigation.
Litigation impacting the effective date and enforcement of this final rule is possible. Past updates to the overtime laws have been challenged successfully in court.
Final Thoughts.
Employers should take this opportunity to re-evaluate all of their exempt classifications, not just the changing of the white-collar salary threshold. The FLSA's exemptions are complex. The Department of Labor is always looking for misclassification of exempt employees. So, employers should seek guidance from experienced legal counsel when making complicated employment decisions.
Given the possibility of legal challenges, employers may wish to hold off taking conclusive action for as long as is feasible. But, employers should not wait to create a plan. July 1 is coming soon.
The Texas Hospitality and Non-profit Law Center only provides this material for informational purposes. The firm does not intend for this material to constitute legal advice. Nor does this create a client-attorney relationship between the firm and any recipient.
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