After months of speculation, the U.S. Department of Labor (DOL) has published its long-anticipated final rule increasing the salary threshold for persons exempt from overtime requirements. The new rule, which increases base salaries for the traditional white-collar exemptions (Executive, Administrative, and Professional) and the exemptions for Outside Sales and Computer Employees, was first proposed in September 2023. In addition to the salary increases, the new rule maintains the requirement that a person meet the duties tests associated with each of these exemptions, as detailed in the Fair Labor Standards Act (FLSA).
Unless a person is expressly exempted from (carved out of) the FLSA’s requirement that overtime be paid for all work over 40 hours per workweek, an individual is ordinarily entitled to be paid 1.5 times their regular hourly rate for all overtime worked. Since 2017, when the salary thresholds for exemptions were last updated by the DOL, a person has had to meet the duties tests of one of the above exemptions and also receive a fixed weekly salary of no less than $684 (annualized, $35,568 a year). The overtime exemption for the highly compensated employees currently covers persons who perform office or nonmanual work and are paid at least $107,432 a year, including a weekly salary of at least $684.
When the current proposed rule was first announced in 2023, the proposal was to increase the salary floor to $82,732 by 2026. Following the receipt of over 33,000 comments from employers and various trade associations objecting to these increases, the new rule, which will take effect July 1, 2024, will update the salary floor for persons exempted from the FLSA, but not to those levels. The published rule:
- Raises the threshold for the white-collar exemptions to no less than $844 per week ($43,888 annual salary)
- Escalates the salary floor to no less than $1,128 per week (annualized, $58,656) on January 1, 2025, keeping in place the same duties tests
- Raises the salary floor for highly compensated employees from the current $107,432 to $132,964 on July 1, 2024, and $151,164 on January 1, 2025, to include a weekly salary not less than $844 and $1,128 in each year, respectively
- After 2025, automatic increases will occur every 3 years based on earnings data
The DOL projects the 2025 increase will impact 3 million workers. It noted that these increases reflect the 35th percentile of weekly earnings of full-time salaried workers in the southern United States, the lowest-wage region based on census data.
The new rule may face opposition in the courts, as the last salary increase did, but for now, employers should review their job descriptions and salary thresholds to ensure that exempt employees will remain exempt, or that employees who may lose the exemption due to the increased salary thresholds are either limited from working overtime or are paid for overtime work in accordance with the FLSA.
