On April 23, 2024, the U.S. Department of Labor (“DOL”) published its final rule increasing salary threshold amounts required for certain employees to be exempt from federal Fair Labor Standards Act (“FLSA”) overtime requirements. The new rule is scheduled to take effect on July 1, 2024. Based on DOL estimates, the rule will expand overtime protection to cover more than 4 million additional workers within the first year. Employers may need to re-classify some employees to non-exempt status and pay appropriate overtime, or increase employees’ salaries.

By way of background, the FLSA requires that non-exempt employees be paid minimum wage and receive overtime pay for anything over 40 hours per workweek. The FLSA exempts, however, several categories from the overtime requirement of the Act. In order to qualify for one of these exemptions, an employee must:

• Perform certain job duties;
• Be paid on a pre-determined fixed salary not subject to reduction due to work quality or quantity; and
• Earn a salary above a DOL determined threshold.

The new rule revises and increases the salary threshold for this test. The new threshold for most necessary exemptions (executive, administrative, professional and computer employees) will increase from $684 per week or $35,568 per year to $844 per week or $43,888 per year beginning July 1, 2024. There will be another increase on January 1, 2025 to $1,128 per week or $58,656 per year.

The FLSA also recognizes an exemption for highly compensated employees whose primary duty includes office or non-manual work, and who customarily and regularly perform at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee. The salary threshold for this exemption will increase from $107,432 per year to $132,964 per year on July 1, 2024, with a subsequent increase to $151,164 per year on January 1, 2025. The DOL states that it will then update the thresholds every three years, to maintain consistency and keep pace with inflation.

The new rule does not change the current one allowing employers to use non-discretionary bonuses and incentive payments, including commissions, to satisfy up to 10% of the standard or special salary level for the exemptions.

What Employers Need to Know

The new rule will likely face legal challenges, but in the meantime, employers should review their exempt workforce to determine which employees may be affected and what adjustments may need to be made.