Employers should review their salary levels for exempt employees in preparation for a new rule effective July 1, 2024.
The Fair Labor Standards Act ("FLSA") has certain exemptions available from minimum wage and overtime pay. For the white collar exemptions (executive, administrative, and professional employees), the annual salary threshold is increasing from $35,568 ($684/week) to $43,888 ($844/week) on July 1 and again on January 1, 2025 to $58,656 ($1128/week). The duties test and salary basis test to qualify for the executive, administrative, or professional exemption are not changing and still need to be met in order to qualify for these exemptions.
The FLSA also has an exemption from minimum wage and overtime pay for highly compensated employees. To qualify under the highly compensated employee exemption, the total annual compensation is increasing from $107,432 to $132,964 beginning July 1 and then to $151,164 on January 1, 2025. Highly compensated employees must receive a salary of at least $844 per week as of July 1 and $1128 per week as of January 1, 2025. The rest of the total annual compensation can include commissions, nondiscretionary bonuses, and other nondiscretionary compensation with certain exclusions. The highly compensated employee exemption has a simplified duties test with needing only to customarily and regularly perform at least one of the duties of an exempt executive, professional, or administrative employee.
Earnings thresholds will be automatically updated every three years beginning July 1, 2027.
There are pending legal challenges to this new rule; however, the outcome and applicability to employers outside of the plaintiffs in the lawsuit has yet to be determined. Therefore, employers should continue to prepare for the new rule by reviewing their exemptions and salary thresholds now and in anticipation of the increases in January as well.
Assuming the rule is not enjoined, employers could choose to increase salaries to meet the new requirements to remain exempt, or reclassify the positions as non-exempt. Requirements for non-exempt employees under the Fair Labor Standards Act include tracking hours worked and being paid 1.5 times their regular hourly rate for working over 40 hours per workweek.
Please reach out to Gutwein Law for help in evaluating exemptions and implementing changes.
