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On April 23, 2024, the Department of Labor (“DOL”) updated and revised the regulation under the FLSA setting new thresholds for exempt employees.
The FLSA requires employees to be paid overtime pay at 1.5 times the employee’s regular rate of pay for all hours worked in excess of 40 hours in one week. Certain employees that qualify for the executive, administrative, or professional (“EAP”) exemption can be exempted from overtime pay. In order to qualify for the EAP exemption, employees must (1) be paid a predetermined and fixed salary that is not subject to reduction (2) the salary amount must meet a minimum threshold, and (3) the employee’s duties must primarily involve executive, administrative, or professional duties.
In addition to the EAP exemption, employees may also be exempted from overtime pay because they are highly compensated employees (“HCE”). The minimum salary threshold for HCEs is significantly higher because it permits employers to forgo an analysis of employees’ duties. The presumption is that the higher an employee’s income is, the more likely they have executive, administrative or professional duties.
The DOL’s final rule makes the following changes to the exemption thresholds; however, it makes no changes to the other requirements for overtime exemption outlined above:
- Beginning July 1, 2024, the minimum salary threshold for EAP exemptions will increase to $43, 888, and on January 1, 2025, the minimum salary threshold will increase to $58,656.
- Additionally, on July 1, 2024, the HCE threshold will increase to $132,964, and on January 1, 2025, the HCE salary threshold will increase to $151,164.
- The new regulation also calls for regular updates to the salary threshold every three years beginning July 1, 2027.
The DOL is setting the EAP salary threshold to align with the 35th percentile of weekly full-time earnings of salaried workers in the lowest-wage Census Region. As the minimum threshold is updated every 3 years, the DOL will continue to increase the threshold to align with the 35th percentile. Similarly, the DOL increased the HCE threshold to align with the 85th percentile of full-time salaried workers nationally, and this benchmark will be used in the future updates to the threshold occurring every 3 years.
The DOL estimates that these changes will affect 1.8 million employees and will call into question the exemption status of nearly 300,000 employees that were previously exempt under HCE analysis. While it is anticipated that there will be some legal challenges to this new regulation, employers should be prepared for the new thresholds to take effect on July 1, 2024. Employers should consult with an attorney to assist in understanding how these regulations will affect their workforce, as many formally exempt employees will likely become non-exempt, triggering the application of other regulations under the FLSA which were previously not applicable. This is particularly true for companies with employees in multiple states, since newly non-exempt employees will be subject to state wage laws as well.
If you have questions about the DOL’s new minimum salary thresholds, please contact a member of KWGD’s Labor and Employment Section.
Kallen L. Boyer, Esq.
330-497-0700 x178
kboyer@kwgd.com