DOL Increases Salary Thresholds for "White Collar" Exemptions Under Fair Labor Standards Act

04.30.2024

Key Takeaways:

• Increased Salary Thresholds: The Department of Labor (“DOL”) has raised the salary thresholds for "white collar" exemptions under the Fair Labor Standards Act (“FLSA”), impacting executive, administrative, and professional employees. These thresholds will incrementally increase over the next few years.
• Impact on Employers: Employers should review their current exempt employees to ensure compliance with the new thresholds. Employers may need to consider adjusting compensation or employment classification for affected employees.
• Future Adjustments: The DOL's new rule includes provisions for future adjustments to salary levels every three years, potentially leading to more employees being entitled to overtime compensation. Employers should stay informed about these changes and plan accordingly.

Background:

Federal regulators have been busy on the employment-law front. While the Federal Trade Commission’s (“FTC”) rule on non-compete agreements has garnered significant attention (learn more the FTC rule by watching “Couch Counsel” here), it is not the only important rule recently released.  

Employers should also be aware of another impactful rule from the DOL, titled “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees” (the “Rule”), which was also finalized last week. 

EAP Exemptions:

Among the exceptions to the overtime requirements under the FLSA are certain so-called “white collar” exemptions, including the Executive Exemption, Administrative Exemption, and Professional Exemption (the “EAP Exemptions”). To qualify for an EAP Exemption, an employee must: (a) be paid a salary; (b) be paid at least a specified weekly salary level (the “EAP Salary Threshold”); and (c) primarily perform executive, administrative, or professional duties as outlined in DOL regulations.

Prior to the enactment of the Rule, the EAP Salary Threshold was set at $684 per week ($35,568 per year). Under the new Rule, however, the DOL sets forth lockstep increases to the EAP Salary Threshold that will become effective in just a few months. Effective as of July 1, 2024, the EAP Salary Threshold will increase to $844 per week ($43,888 per year), and effective January 1, 2025, the EAP Salary Threshold will increase to $1,128 per week ($58,656 per year).   

Highly Compensated Employee Exemption:

The eligibility for the FLSA’s Highly Compensated Employee Exemption (the “HCE Exemption”) is also affected by the new Rule. Currently, an employee qualifies under the HCE Exemption if: (a) the employee’s total annual compensation is $107,432 or more, including at least $684 per week paid on a salary or fee basis (the “HCE Salary Threshold”); (b) the employee’s primary duty involves office or non-manual work; and (c) the employee customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee.

The Rule increases the HCE Salary Threshold to $132,964 per year (including at least $844 per week paid on a salary or fee basis), effective July 1, 2024, and to $151,164 per year (including at least $1,128 per week paid on a salary or fee basis) effective January 1, 2025.

To add yet another wrinkle, the DOL’s new Rule calls for even more adjustments to the salary levels going forward. Effective July 1, 2027, and every three years thereafter, the EAP and HCE Salary Thresholds will be adjusted by the DOL. However, these changes will be made based on data and methods to be determined at the time of such updates. Due to these increases, fewer employees will meet the EAP and HCE Salary Thresholds, resulting in more employees being entitled to over time compensation.

What Employers Should Do Today:

Barring court action to enjoin the Rule, its first increase will soon take effect and could impact a significant number of workers. Employers should assess their current exempt employees and prepare for the first increase on July 1, as wells as future increases under the Rule. Potential steps include:

• Reviewing current exempt/salaried employees who are compensated below the new thresholds to determine whether it is more cost effective to either (a) increase those employees’ annual compensation above the new threshold or (b) compensate those employees on a non-exempt basis;
• Considering whether employees currently classified as exempt/salaried would prefer to remain as salaried employees;
• Evaluating whether the work performed by employees set to become non-exempt is likely to result in significant overtime, and determining whether that work can be redistributed to other employees.

Importantly, the Rule does not change the “duties” aspects of the exemption requirements, but now would also be a good time to make sure that exempt employees also meet the duties tests, in addition to the salary test—both must be met for the exemption to apply.

Questions about how this new rule impacts your business?  Reach out to a member of our employment law team today.