On April 23, 2024, the U.S. Department of Labor (DOL) announced a final regulatory rule that will raise the minimum salary threshold for employees who are classified as “exempt” under the white-collar exemptions to the Fair Labor Standards Act (FLSA) in two steps: first in July 1, 2024, and then again in January 1, 2025. The new rule also creates a mechanism for subsequent automatic increases every three years thereafter based on then-current economic data, with the next increase slated for July 1, 2027.
This new rule comes after the DOL proposed these changes last year in August 2023. Under the FLSA and DOL regulations, for an employee to be properly classified as “exempt” from overtime, the employee must be paid at least the minimum salary threshold and the employee’s job position must also meet certain tests regarding their job duties (namely exemptions for job duties performed by executive, administrative, professional, outside sales and computer employees, commonly referred to as the “white collar” exemptions).
Under the DOL’s new rule, the salary threshold requirements will change as follows:
- Effective July 1, 2024, the minimum salary threshold for employees classified as “exempt” under the “white collar” exemptions will increase to $844 per week ($43,888 annualized). For highly compensated employees, minimum compensation threshold will increase to $132,964 per year, where at least $844 per week must be paid on a salary or fee basis.
- Effective January 1, 2025, the minimum salary threshold for employees classified as “exempt” under the “white collar” exemptions will increase to $1,128 per week ($58,656 annualized). For highly compensated employees, minimum compensation threshold will increase to $ 151,164 per year, where at least $1,128 per week must be paid on a salary or fee basis.
- Effective July 1, 2027 and every three years thereafter, the minimum salary threshold will increase by a notice published by the DOL based on the then-current economic data published by the Bureau of Labor Statistics (with the minimum salary threshold targeting the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage census region, and the highly compensated threshold targeting the 85th percentile of full-time salaried workers nationally).
- The DOL decided not to apply the standard salary level to the U.S. territories subject to the federal minimum wage, or to update the special salary levels for American Samoa and the motion picture industry, as had been previously proposed.
The DOL has published FAQs about the proposed rule. The DOL indicates that under the new rule, the agency expects many currently salaried employees to no longer be eligible to be classified as “exempt” and therefore eligible for overtime wages. The DOL has also clarified that the proposed rule does not seek to change the duties tests for these exemptions.
The DOL’s new increases come after the Trump-era DOL raised the salary threshold in 2019 from the long-standing $455 per week to $684 per week (and also raised the highly compensated employee threshold to $107,432 up from $100,000). That action came after the Obama-era DOL attempted to raise the minimum salary threshold to $913 per week, but that increase was challenged by employer groups, stayed by a federal court, and ultimately withdrawn. These latest regulations from the DOL appear susceptible to the same challenges raised by employer groups to the Obama-era regulations that were withdrawn.
Employers should promptly evaluate how the new rule will impact their workforce and current wage and hour practices. Employers should also stay abreast of any legal challenge to the DOL’s final rule before its effective date(s). If you have any questions on these new requirements, need assistance developing wage and hour policies and procedures, or have other questions related to wage and hour compliance, please contact Betty Graumlich at bgraumlich@reedsmith.com, Christopher Bouriat at cbouriat@reedsmith.com, Noah Oberlander at noberlander@reedsmith.com, or the Reed Smith lawyer with whom you normally work.