May 28, 2024

On April 23, 2024, the U.S. Department of Labor issued a Final Rule under the Fair Labor Standards Act (“FLSA”) that will increase the overtime thresholds for exempt employees. The Final Rule also includes an automatic update to the thresholds based on a formula using wage data.

Background
The FLSA requires covered employers to pay employees a minimum wage and overtime for hours worked in excess of forty hours per week unless an exemption applies. The most common exemption is for bona fide executive, administrative or professional employees. This exemption applies when (1) an employee is paid a salary, (2) the salary is not less than a minimum salary threshold amount, and (3) the employee primarily performs executive, administrative, or professional duties. Highly compensated employees may also be exempt if they meet a relaxed duties requirement.

The FLSA provides minimum standards and does not preempt a state from establishing more protective standards. If a state has either a higher salary threshold or more stringent job duties requirements, then those higher standards would apply in that state. So, as you review this Final Rule, do not forget to include any more stringent state requirements.

Changes under the Final Rule
The salary threshold for executive, administrative and professional employees will increase from $35,568 per year to $43,888 per year effective July 1, 2024. The salary threshold will then increase to $58,656 per year on January 1, 2025.

Additionally, the Final Rule increases the total annual compensation for highly compensated employees from $107,432 to $132,964 on July 1, 2024, and then to $151,164 on January 1, 2025.

Finally, the Final Rule includes automatic updates every three years, beginning July 1,2027. These updates will be based on up-to-date wage data. The salary threshold for executive, administrative and professional employees is equivalent to the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region (the South).

The highly compensated employee total annual compensation threshold is equivalent to the 85th percentile of salaried worker earnings nationwide.

Next Steps
It is expected that the Final Rule will face legal challenges so there may be a delay in implementation. Additionally, given that 2024 is a presidential election year, the Final Rule may never be implemented or will be rescinded if there is a change in administration.

Even with potential legal challenges, employers must begin assessing their workforce to determine how best to implement. It is important to begin reviewing your exempt workforce to determine whether you will increase annual salaries or will convert roles from exempt to non-exempt.

Employers have a range of options that can be used as they strategize on implementing the Final Rule. It is important to partner with counsel as you review your exempt workforce and determine what approach works best for each role and your organization. As always, your Stall Legal attorney is ready to assist with this review and implementation.