Department of Labor’s Final Rule Increases Salary Thresholds for Employees Exempt from Overtime Pay
The Department of Labor announced it would be making revisions to the overtime thresholds in the fall of 2023. On April 23, 2024, the US Department of Labor issued a final rule revising its original proposal and increasing the salary thresholds for employees exempt from overtime pay.
Overtime Exempt Employees
The Fair Labor Standards Act (“FLSA”) generally requires that employees be paid overtime (equal to 1.5 times the employee’s regular hourly rate) for all hours worked over 40 hours per week. However, there are certain exemptions to these overtime rules. Most notable among them is the “white collar” exemption which applies to executive, administrative, or professional employees who receive a fixed and predetermined salary above a certain threshold. There is also an exemption for highly compensated employees whose job duties do not satisfy the requirements of the exemption for executive, administrative, or professional employees.
The final rule updates the salary level provisions of the white collar and highly compensated employees exemption. Previously, the annual salary threshold for executive, administrative, and professional was set at $35,568 ($684 per week) and the annual salary threshold for highly compensated employees was set at $107,432 ($2,066 per week).
Changes in the Final Rule
The final rule makes three major revisions to the existing regulations.
- Increases to the minimum salary threshold for executive, administrative, or professional employees. The final rule increases the salary threshold required to exempt an executive, administrative, or professional employee from federal overtime requirements. The increase will occur in two stages. On July 1, 2024, the annual salary threshold will increase to $43,888 ($844 per week). On January 1, 2025, the annual salary threshold will again increase to $58,656 ($1,128 per week).
- Increases to the minimum salary threshold for highly compensated employees. The final rule increases the earnings threshold for highly compensated employees from federal overtime requirements. Similar to the changes to the increases for executive, administrative, or professional employees, the increase will occur in two stages. On July 1, 2024, the annual salary threshold will increase to $132,964 ($2,557 per week). On January 1, 2025, the annual salary threshold will again increase to $151,164 ($2,907 per week).
- New Mechanism for Automatic Updates of the Thresholds Every Three Years. The final rule implements a mechanism that will require automatic updates to the thresholds listed above once every three years, beginning on July 1, 2027.
Potential Legal Challenges
The final rule is based on a methodology that one court found illegal in 2016. As such, this final rule is also likely to face legal challenges, and its implementation may be delayed by a court.
Impact of the Final Rule on Employers
Employers should monitor the final rule so that they are aware of any legal challenges or other developments that may impact the implementation of the new salary thresholds. Simultaneously, employers should examine the compensation structure of their workforce to determine whether they need to either:
- Increase exempt employees’ salaries so that they do not forfeit their exempt status if or when the rule takes effect; or
- Alternatively, convert employees to a non-exempt status with an hourly wage.
Employers should also ensure that they implement internal procedures so that they comply with the final rule’s salary increases, and any automatic salary increases that occur in the future. If employers fail to take action to increase salaries or track the overtime hours of formerly exempt employees, they may be subject to significant penalties under the FLSA and Montana’s wage payment laws.
As employers navigate and adjust for these new compensation thresholds and FLSA classification concerns, our team of employment attorneys at Worden Thane P.C. can assist you with all aspects of preparing for and maintaining compliance under the new regulations and the FLSA.