On April 23, 2024, the U.S. Department of Labor (DOL) issued a final rule substantially raising the salary thresholds for certain employees to qualify for overtime exemptions under the federal Fair Labor Standards Act (FLSA).
The FLSA generally requires covered employers to pay employees a minimum wage and, for employees who work more than 40 hours a week, overtime pay of at least 1.5 times an employee’s regular rate. However, the law currently exempts from its overtime requirements those who are employed in “white collar” positions whose duties satisfy the FLSA’s “duties” test applicable to executive, administrative and professional employees, provided that such an individual’s annualized salary is at least $35,568.
Beginning July 1, 2024, the recently released final rule calls for an increase in the compensation threshold for executive, administrative and professional employees to $43,888 per year. Thereafter, beginning January 1, 2025, the final rule will raise the compensation threshold for such employees to $58,656 per year. Updates to the earnings thresholds shall be calculated every three years based on wage data.
If the rule—which is likely to face legal challenges that could delay implementation—goes into effect, it is expected to result in about four million U.S. employees losing their exempt status. Affected employers should consider either raising the salaries paid to such employees to maintain the exemption or reclassifying their positions as non-exempt and paying them overtime for any hours worked over 40 per week.
