The U.S. Department of Labor announced a final rule on April 23, 2024, titled, “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees.” The Rule raises the standard salary level that helps define and delimit which salaried workers are entitled to overtime pay protections under the Fair Labor Standards Act (FLSA). The first phase of the Rule is in effect as of July 1, 2024, and the second phase which will increase the salary threshold again, is expected to go into effect on January 1, 2025.
What are Overtime Protections?
Since 1938, overtime protections have been an important part of the FLSA and were established to protect workers from exploitation and to benefit workers, their families, and communities. The FSLA 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.
Section 13(a)(1) of the FSLA exempts from the minimum wage and overtime pay requirements “any employee employed in a bona fide executive, administrative, or professional capacity.” There is also an exemption for highly compensated employees.
What Exemptions are Affected?
The Rule affects those who are employed in positions meeting the criteria for the executive, administrative, professional, and highly compensated employee exemptions.
What is the Current Salary Threshold for FLSA Exemptions?
The current salary threshold for executive, administrative, and professional employees is $648 per week, which annualizes to $35,568 per year. The current salary threshold for the high compensated employee exemption is $107,432. In other words, to be considered “exempt” or ineligible for overtime under the executive, administrative, professional, or highly compensated employee exemption, an employee must make more than those threshold amounts.
What are the Changes to the Salary Thresholds?
Effective July 1, 2024, the Rule requires an increase in the threshold for bona fide executive, administrative, and professional employees to $844 per week, which annualizes to $43,888 per year.
Beginning January 1, 2025, the Rule will raise the threshold for bona fide executive, administrative, and professional employees to $1,128 per week, which annualizes to $58,656 per year.
The Rule also increases the threshold for highly compensated employees. The first phase increased the compensation requirement for highly compensated employees to $132,964. Beginning January 1, 2025, this compensation requirement will increase to $151,164.
The Rule also provides for automatic adjustments to the salary threshold every three years to reflect the current earnings data.
What Should Employers Do Next?
Employers should continue to monitor the Rule for any legal developments that may impact the effective date or the substance of the Rule. To maintain the exemption status of employees, employers will need to increase the salaries of any employees treated as exempt under section 13(a)(1) of the FSLA. If employers do not wish to raise salaries, employees under the threshold would be considered “non-exempt” and be entitled to overtime pay for work in excess of 40 hours.
