The U.S. Department of Labor (DOL) announced a Final Rule increasing the salary threshold for Fair Labor Standards Act (FLSA) overtime exemptions, a move which the DOL anticipates will result in around four million additional workers becoming eligible for overtime pay. 

Currently, the minimum salary requirement for the “white collar” exemptions (executive, administrative, and professional) is no less than $684 per week ($35,568 per year).  Under the DOL’s new Final Rule, this amount will increase to:

• $844 per week ($43,888 per year) on July 1, 2024
• $1,128 per week ($58,656 per year) on January 1, 2025

The Final Rule contains further automatic increases to these “white collar” exemptions every three years, beginning on July 1, 2027, based on then-current earnings data. These automatic increases will be published by the DOL within 150 days prior to implementation.

Implications of Overtime Final Rule

Under the FLSA, employees must be paid overtime (usually at a rate of 1.5 times the regular rate of pay) for all hours worked in excess of 40 in a workweek unless the employee falls under one of the exemptions.  To qualify for the FLSA’s executive, administrative, or professional exemption, the employee must not only perform exempt duties but must also be paid the minimum salary threshold (note, certain exceptions apply for teachers, doctors, lawyers, and outside sales employees). As a result of this Final Rule, employees who perform exempt duties but who are paid less than the new salary threshold will lose their exemption status and will be eligible to receive overtime.  Employers should begin reviewing all employees earning salaries between $35,568 and $43,887 and should decide whether to raise these individuals’ salaries to maintain their exempt status or convert the employees to non-exempt status and pay overtime if worked.

The DOL has also increased the $107,432 annual compensation threshold for the “highly compensated employee” (HCE) exemption.  To qualify for the HCE exemption under the Final Rule, employees must earn annual compensation of $132,964 beginning on July 1, 2024, and $151,164 beginning on January 1, 2025.  This HCE threshold will also be subject to automatic three-year updates starting July 1, 2027.  With this nearly 24% increase, employers should also evaluate employees classified as HCEs and consider whether compensation increases are required in light of the significant threshold change.

While we do expect legal challenges to follow the DOL’s announcement, employers should not rely on court intervention prior to the July 1 implementation date.  We will continue to monitor the DOL’s Final Rule and will send updates as they become available.  As always, employers should be mindful that any changes made to pay practices are in compliance with applicable state and local wage and hour laws.