Employers Prepare: FLSA Overtime Salary Thresholds to Increase in July
On April 23, 2024, the U.S. Department of Labor (“DOL”) introduced its long awaited final rule that elevates the requirements for businesses to classify employees as exempt from overtime under the executive, administrative, and professional (“white-collar” or “EAP”) and highly compensated employee exemptions. The DOL has announced major increases to the salary threshold for these exemptions, set to take effect in two phases: initially on July 1, 2024, and subsequently on January 1, 2025.
Overview of the DOL’s Final Rule
Current Threshold Increase: As of July 1, 2024, the FLSA salary threshold for exempt employees will rise from $35,568 annually ($684 per week) to $43,888 annually ($844 per week). This adjustment means employees earning less than $43,888 will be eligible for overtime pay if they work more than 40 hours in a week.
Future Threshold Increase: Starting January 1, 2025, the threshold will increase further to $58,656 annually ($1,128 per week). This sets a new benchmark for exempt status under the FLSA’s white-collar exemptions (executive, administrative, and professional roles).
Highly Compensated Employees: The threshold for the highly compensated employee exemption will also increase from the current threshold of $107,432 per year to $132,964 per year beginning on July 1, 2024, and $151,164 per year beginning on January 1, 2025.
Key Points of the Final Rule
Salary Basis and Job Duties: No changes have been made to the requirements that employees must be paid on a salary basis and meet certain job duties criteria to qualify for EAP exemptions.
Data-Driven Adjustments: The adjustments are based on recent earnings data, setting the standard salary level at the 35th percentile of earnings for full-time salaried workers in the lowest-wage Census Region.
Future Updates: Starting July 1, 2027, the salary thresholds will be updated every three years, ensuring they remain aligned with economic conditions.
Implications for Employers
Review Employee Salaries:
Assess the salaries of employees currently classified as exempt but earning below the new threshold.
Decide whether to increase their salaries to maintain exemption or reclassify them as non-exempt.
Plan for Overtime Costs:
For employees who will fall below the new salary threshold and become non-exempt, anticipate potential increases in overtime costs.
Consider adjusting work schedules to manage these expenses effectively.
Communicate Changes:
Clearly communicate any changes in employment status or payroll adjustments to affected employees.
Transparency will help manage expectations and maintain trust.
Ensure that managers and supervisors are trained on the new rules and understand compliance requirements.
While there is potential for legal challenges to the rule—similar to what occurred with a previous attempt in 2016—it is prudent for employers to prepare for these changes to take effect as scheduled. Proactively adjusting your employment strategies will help mitigate any disruptions and ensure compliance.
The Stein Adler Employment Law team is here to help ensure you are in compliance with federal or local minimum wage and overtime requirements, including reclassifying workers based on the new salary thresholds or otherwise evaluating whether you are properly classifying members of your workforce as exempt from wage and hour laws. Please contact Jonathan Adler, Casey Hail, or Melanie Sarver for assistance.