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May 7, 2024
Update: Before the largest phase of the U.S. Department of Labor’s Final Rule regarding overtime exemptions takes effect in January 2025, a federal court in Texas stuck down the rule on a national scale, finding that the Department of Labor lacked the authority to implement it.
On April 23, 2024, after considering more than 33,000 comments, the U.S. Department of Labor (DOL) announced a final rule, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees. The final rule updates and revises the regulations of the Fair Labor Standards Act (FLSA) that implement the exemption from minimum wage and overtime pay requirements for executive, administrative, and professional employees, as those categories of employees are defined in the regulations.
Employees are exempt from the FLSA’s minimum wage and overtime protections if they are employed in a bona fide executive, administrative, or professional (EAP) capacity. To fall within the EAP exemption, an employee generally must meet three tests.
The final rule increases the standard salary level and the highly compensated employee total annual compensation threshold (see chart below). The final rule will take effect on July 1, 2024, and on January 1, 2025, when changes in the methodologies used to calculate these levels become applicable, and it provides for future updates to the levels every three years to reflect current earnings data.[2]
The DOL revised the exemption regulations because four years have passed since the last update in 2019. During that time, the wages of salaried workers have rapidly grown. That rapid growth has decreased the effectiveness of the $684 per week salary level. The DOL’s salary level increases seek to identify more effectively who is employed in a bona fide executive, administrative, or professional capacity and seek to ensure that the FLSA’s overtime protections are implemented fully.
Employers: As the DOL, itself, has identified in its FAQs, you have options in response to the final rule. For example, for each employee affected by the increased earnings threshold, you may:
| Date | Standard Salary Level |
Highly Compensated Employee Total Annual Compensation Threshold
|
| Before July 1, 2024 | $684 per week (equivalent to $35,568 per year) |
$107,432 per year, including at least $684 per week paid on a salary or fee basis |
| July 1, 2024 | $844 per week (equivalent to $43,888 per year) | $132,964 per year, including at least $844 per week paid on a salary or fee basis |
| January 1, 2025 | $1,128 per week (equivalent to $58,656 per year) |
$151,164 per year, including at least $1,128 per week paid on a salary or fee basis |
| July 1, 2027, and every three years thereafter | To be determined by applying to available data the methodology used to set the salary level in effect at the time of the update |
To be determined by applying to available data the methodology used to set the salary level in effect at the time of the update |
This article is designed to provide one perspective regarding recent legal developments, and is not intended to serve as legal advice. Always consult an attorney with specific legal issues.
[1] The DOL’s regulations also provide an alternative test for certain highly compensated employees who are paid a salary, earn above a higher total annual compensation level, and satisfy a minimal duties test.
[2] According to the DOL’s FAQs on the final rule,
“The initial updates to the standard salary level and HCE threshold that will occur on the rule’s effective date, July 1, 2024, are determined by applying to current earnings data the methodologies used to set those thresholds in the Department’s 2019 final rule. Specifically, the $844 per week standard salary level is equivalent to the 20th percentile of salaried earnings in the lowest-wage Census Region and/or in the retail industry nationally, while the $132,964 HCE threshold is equivalent to the annualized weekly earnings amount of the 80th percentile of full-time salaried workers. Through its updating mechanism, the Department will continue to update the standard salary level and HCE threshold every three years using the methodologies in effect at the times of the updates and current data.
The thresholds that will become applicable on January 1, 2025, are the product of new methodologies established by this rulemaking, which build on lessons learned from the Department’s most recent rulemakings. Specifically, the new $1,128 per week standard salary level is equivalent to the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region(the South), while the HCE test’s new $151,164 total annual compensation threshold is equivalent to the 85th percentile of salaried worker earnings nationwide.”
