On April 23, 2024, the Department of Labor announced a final rule  increasing the Fair Labor Standards Act’s annual salary-level threshold from $35,568 to, eventually, $58,656 over the next year and a half. As a reminder, the Fair Labor Standards Act (FLSA) requires covered employers to pay employees a minimum wage and, for employees who work more than 40 hours in a week, overtime pay of at least 1.5 times the employee’s regular rate of pay.

Under this new rule, effective July 1, 2024, the salary threshold will increase to the equivalent of an annual salary of $43,888 ($844 a week, up from $684). The threshold will increase again on January 1, 2025, to $58,656 ($1,128 a week).  White-collar workers making less than that amount will now need to be paid overtime when they work more than 40 hours in a week. The new rule also adjusts the threshold for highly compensated employees.

The rule includes an automatic increase provision—starting July 1, 2027, salary thresholds will update every three years, by applying up-to-date wage data to determine new salary levels.

Takeaway for employers: Employers now must decide whether to raise the salary of those employees who earn above the overtime threshold under the old standard but below it under the new standard so they remain exempt. Employers that choose not to raise employees’ salaries should be prepared to pay overtime to these employees when they work more than 40 hours in a workweek. Schedules for those employees whose salaries are not raised above the new threshold may need adjusting to limit overtime costs. Careful communication should be rolled out to explain why employees formerly categorized as exempt are now nonexempt.

What are the FLSA Exemptions Again?

Some white-collar employees are exempt from the FLSA’s overtime pay provisions based on their salary level and their job duties. Employers must remember that there is more to the analysis than simply meeting the minimum salary thresholds. The duties tests must also be analyzed to ensure each exempt employee’s job duties properly fall within the classifications of the applicable exemption. Here’s a quick reminder of a few of the more common exempt categories:

  • Executive exemption. The employee’s primary duty must be managing the business or a department or subdivision of the business. The employee must customarily and regularly direct the work of at least two employees and have the authority to hire or fire workers (or the employee’s suggestions and recommendations as to hiring, firing, or changing the status of other employees must be given particular weight).
  • Administrative exemption. The employee’s primary duty must be performing office or nonmanual work that is directly related to the management or general business operations of the employer or the employer’s customers. The employee’s primary duty also must include the exercise of discretion and independent judgment with respect to matters of significance.
  • Professional exemption. The employee’s primary duty must be to perform work requiring advanced knowledge in a field of science or learning that is customarily acquired by prolonged, specialized intellectual instruction and study.

Now’s the time to plan for the July 1, 2024, rule implementation. If you need help determining whether your employees are properly classified under this new rule—or for any other employment law regulatory compliance needs—contact The Chapman Firm for personalized analysis and professional guidance.