Last year, we alerted you to a rule proposed by the U.S. Department of Labor (DOL) that would raise the weekly salary amounts necessary to qualify for certain exemptions to the requirement under the federal Fair Labor Standards Act (FLSA) that employers pay employees time-and-a-half for hours worked in excess of 40 hours in a work week. On April 23, 2024, the DOL released its final version of that rule, which will directly impact how employers classify and compensate their employees and will expand overtime eligibility by raising the salary thresholds required to qualify for exemptions from overtime pay under the FLSA.

To be exempt from overtime pay requirements, employees must primarily perform exempt job duties, be paid on a salary (not hourly) basis and earn at least a minimum threshold salary. The new rule raises the salary thresholds for the executive, administrative, professional and highly compensated employee exemptions.

For the executive, administrative and professional exemptions, the current salary threshold is $684 per week ($35,568 annually), which will increase as follows:

• $844 per week ($43,888 per year) on July 1, 2024;
• $1,128 per week ($58,656 per year) on January 1, 2025; and
• Additional increases every three years, beginning on July 1, 2027.

For the highly compensated employee exemption, the current salary threshold of $107,432 will increase as follows:

• $132,964 on July 1, 2024;
• $151,164 on January 1, 2025; and
• Additional increases every three years, beginning on July 1, 2027.

The new rule is set to become effective on July 1, 2024.

Steps Employers Should Take

Employers should review their exemption classifications to determine how this new rule will impact their workforce, particularly for exempt employees whose salaries are near the new thresholds. Where appropriate and feasible, employers may want to consider making pay adjustments to maintain exempt status, or alternatively, to reclassify employees. Employers should also take this opportunity to update and ensure their classification policies and processes are compliant generally, including with respect to job duties. Policies regarding authorization to work overtime, timekeeping and pay practices should also be reviewed for compliance and consistency with business needs.

It is important to keep in mind that some states impose independent requirements for overtime exemption under state law, including salary thresholds which exceed the amounts in the new DOL rule, and thus should also be considered in assessing exemption policies and practices.

Anticipated Legal Challenges

Employers and business groups will likely challenge the new rule, as they successfully did in 2016 when the DOL’s previous effort to raise exemption salary thresholds was thwarted. The new rule may be vulnerable to similar legal challenges this time. Notably, at least one US Supreme Court Justice has recently questioned whether the DOL has authority to set minimum salary thresholds at all, signaling that some members of the Court may view the DOL’s new overtime rule with skepticism.

Whether the new rule is ultimately implemented remains to be seen, but in the interim, employers should begin taking steps now to prepare for these changes to ensure they are compliant if and when the new rule becomes effective.