On April 23, 2024, the U.S. Department of Labor (“DOL”) announced a final rule on overtime that seeks to make more workers eligible for minimum wage and overtime protections under the Fair Labor Standards Act (“FLSA”). The DOL’s final rule provides for tiered increases to the minimum salary levels required to satisfy the tests for exemption under the executive, administrative, and professional (EAP) and highly compensated employee exemptions. The DOL’s final rule also provides for automatic adjustments to the minimum salary levels based on earnings data.
What is the final rule?
Beginning July 1, 2024, the minimum weekly salary level required to satisfy an EAP exemption will increase from the current level of $684 per week (equivalent to $35,568 per year) to $844 per week (equivalent to $43,888 per year). Beginning January 1, 2025, the minimum salary level required to satisfy an EAP exemption will increase again to $1,128 per week (equivalent to $58,656 per year). Beginning July 1, 2024, the highly compensated employee total annual compensation threshold will increase from the current level of $107,432 per year (including at least $684 per week paid on a salary or fee basis) to $132,964 per year (including at least $844 per week paid on a salary or fee basis). This amount will increase again on January 1, 2025, to $151,164 per year (including at least $1,128 per week paid on a salary or fee basis). The DOL’s final rule calls for these salary levels to be automatically adjusted again on July 1, 2027, and every three years thereafter, based on earnings data.
Pay is only one component of the test
It is important to remember that minimum salary levels are just one component used to determine whether a worker is properly classified as exempt under the FLSA. To qualify for an EAP exemption, an employee must generally: (1) be paid on a salary basis, meaning the employee is paid a predetermined and fixed amount that isn’t subject to reduction because of variations in the quality or quantity of work performed; (2) be paid at least a specified weekly salary level; and (3) primarily perform executive, administrative, or professional duties. The highly compensated employee exemption also requires that certain tests be met including, but not limited to, the satisfaction of minimum pay thresholds and a job duties test.
Be prepared to comply by July 1, 2024
Although legal challenges are expected, outcomes and timing are difficult to predict at this stage and employers should not assume the DOL’s final rule will be struck down prior to the deadline for compliance (if at all). With the deadline quickly approaching, employers impacted by the DOL’s final rule should develop a compliance plan that can be introduced and implemented before July 1, 2024. In the interim, employers impacted by the DOL’s final rule should monitor legal developments to ensure their compliance obligations do not change prior to the deadline. As always, employers should also ensure their compliance with applicable state wage and hour laws, which may differ from the requirements of the FLSA.
If you have any questions regarding the DOL’s overtime rule, please contact Josh Gessling or any member of our Labor and Employment Law team.
