Employment Law Report
DOL’s New Overtime Rule Significantly Raises Salary Thresholds for Exempt Employees
On April 23, 2024, the United States Department of Labor (“DOL”) issued its long-awaited final rule raising the salary threshold for exempt employees under the Fair Labor Standards Act (“FLSA”). Under the FLSA, certain “white collar” employees are exempt from overtime requirements if they are: (1) paid on a salary basis; (2) paid at least a specified salary threshold; and (3) primarily perform administrative, executive, or professional duties as set out in the DOL regulations. The new rule significantly increases the minimum salary threshold used to determine whether certain “white collar” workers and highly compensated employees are exempt from overtime pay requirements. The DOL estimates that the new rule will benefit approximately 4 million workers. The rule is scheduled to take effect on July 1, 2024.
Under the new rule, the salary threshold will increase from $684 per week ($35,568 per year) to $844 per week ($43,888 per year). On January 1, 2025, the salary threshold will increase again to $1,128 per week ($58,656 per year). After that, the salary threshold will automatically increase again on July 1, 2027 and every three years thereafter based on current wage data.
The final rule also raises the minimum salary for highly compensated employees from $107,432 to $132,964 per year on July 1, 2024. The minimum salary for highly compensated employees will rise again on January 1, 2025 to $151,164 per year. Like the salary threshold for “white collar” employees, it will also be automatically updated every three years.
Legal challenges to the new rule have already been filed, and more are expected. When the DOL attempted to raise the salary threshold in 2016, the rule was ultimately enjoined. And in 2022, Justice Kavanaugh questioned the DOL’s authority to impose any salary threshold during oral argument in Helix Energy Sol’ns Group, Inc. v. Hewitt, a case involving the highly compensated employee exemption. Even if some parts of the rule are invalidated, however, some parts of the rule may survive because the new rule contains a severability clause.
Before the new rule takes effect, employers should review exempt employee classifications to determine if all exempt employees meet the new salary threshold and, if not, whether the employees whose pay is lower than the new salary threshold should be reclassified as non-exempt employees or whether their salaries should be increased. For employees who are reclassified, employers should review timekeeping procedures to ensure that non-exempt employees record all hours worked and review hours expectations and procedures for approval of overtime.
