Labor Department Finalizes Rule Increasing Salary Thresholds for FLSA Exemptions
The U.S. Department of Labor ("DOL") released its highly anticipated final rule for section 13(a)(1) of the Fair Labor Standards Act ("FLSA") which makes important changes to overtime eligibility, including:
(1) significantly increasing the minimum salary needed to qualify for FLSA "white-collar" exemptions;
(2) increasing the total annual compensation requirement to qualify for the "highly compensated employee" exemption; and
(3) implementing periodic automatic increases in the salary thresholds.
Although many state wage and hour laws (like those in Washington and California) have salary thresholds that exceed the new FLSA salary threshold, the new FLSA rule will mean that employees in all states, including those without the higher state minimums, will need to meet at least the federal threshold.
Salary Threshold Increase for the White-Collar Exemption Takes Effect July 1, 2024
Beginning July 1, 2024, the minimum weekly salary threshold required to qualify for one of the "white collar" exemptions will increase from $684 weekly ($35,568 annually) to $844 weekly ($43,888 annually). The minimum weekly salary threshold will increase again on January 1, 2025, to $1,128 weekly ($58,656 annually).
The DOL has set the standard salary level at the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region (currently the South) and has built in an automatic increase on a regular cadence. On July 1, 2027, the minimum weekly salary thresholds will automatically increase every three years based on up-to-date wage data to determine the new salary levels.
Total Annual Compensation Increase for Highly Compensated Employees Takes Effect July 1, 2024
On July 1, 2024, the total annual compensation required to meet the "highly compensated employee" exemption will increase from $107,432 to $132,964. After this initial increase, the total annual compensation for highly compensated employees will again increase on January 1, 2025, to $151,164. These increases are aimed at bringing the salary threshold up to the 85th percentile of full-time salaried workers nationally. (Note that some state wage and hour laws, including Washington and California, do not recognize this exemption.)
Key Takeaways for Employers
- While legal challenges to this rule are certainly looming, employers should still take steps to ensure they are compliant with these new regulations. Employers should review their exempt positions nationwide to determine which roles will be impacted by this increased salary threshold.
- After making this determination, employers need to decide whether to retain exempt status for certain roles by either reclassifying to non-exempt or increasing the salary to meet the minimum threshold.
- Employers should also examine how these new salary thresholds will interact with state minimum wage and overtime laws, which are often more employee friendly.
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As always, DWT will provide updates as needed. In the meantime, if you have any questions about your company's compliance, please contact legal counsel.
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