The U.S. Department of Labor (DOL) issued its Final Rule on April 23, 2024, to increase the minimum salary requirements for the “white collar” exemptions (executive, administrative, and professional) from minimum wage and overtime pay requirements under the Fair Labor Standards Act (FLSA). The Final Rule sharply increases the minimum salary level for the white-collar exemption to apply. The increase will take effect in two stages over six months. https://www.dol.gov/newsroom/releases/whd/whd20240423-0
The standard salary level will increase in two phases from the current $684 per week ($35,568 per year) to:
- July 1, 2024: $844 per week ($43,888 annually.
- January 1, 2025: $1,128 per week ($58,656 annually)
The highly compensated exemption (HCE) total annual compensation level will increase from its current $107,432 per year to:
- July 1, 2024: $132,964 per year.
- January 1, 2025: $151,164 per year
As expected, the changes leave the “duties” tests for the exemptions untouched. So, as before, an employee generally must meet both the duties and pay requirements of at least one exemption in order to be classified as exempt. Duties test can be found here: https://www.dol.gov/agencies/whd/fact-sheets/17a-overtime
The salary thresholds will be updated every three years to reflect current earnings data, beginning July 1, 2027.
According to DOL estimates, in the first year of the Final Rule taking effect, approximately four million workers will be impacted. The DOL estimates that 292,900 employees will be affected by the adjustment to the HCE salary threshold. The DOL also projects an annualized income transfer from employers to employees of $1.5 billion.
What Should Employers Do?
It is possible a federal court will prevent the DOL from enforcing the Final Rule while the legal challenges are pending. That leaves employers in a difficult position of preparing to comply while the rule’s prospects are unclear. Adding to the complexity is an upcoming presidential election. A turnover in administrations could bring a change of course by the DOL. Nevertheless, employers should put a strategy in place to effectuate changes by the July and January deadlines in the event the rule does go into effect.
For now, employers need to identify current exempt employees who do not satisfy the new minimum salary threshold and devise a strategy for compliance. Employers that have exempt workers who earn more than $684 per week, but less than the new salary thresholds of the Final Rule (and who satisfy the duties requirements), can comply by increasing affected employees’ salaries to the minimum salary level so they maintain their exempt status. Alternatively, employers can retain the employees’ current pay levels and reclassify the affected employees as nonexempt, thus making them eligible for overtime.
Employers are urged to prepare for compliance, including assessing the impact on their workforce and strategizing accordingly. Regardless of the rule’s ultimate fate, it prompts a valuable opportunity for employers to review and ensure the proper classification of their employees.
Stay tuned for more information from our Human Resource professionals.