By: Hunter C. Ransom
Summary: Minimum salary threshold for overtime exemption to rise to $43,888 on July 1, 2024; then to $58,656 on January 1, 2025; then automatically every three years.
Last year, the United States Department of Labor released a Proposed Rule titled Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees. That’s a long-winded way of saying the DOL is substantially increasing the number of employees eligible for overtime.
Starting from the Bottom
The Fair Labor Standards Act generally requires employers to pay an overtime premium of 1.5 times an employee’s regular rate of pay for all hours worked beyond 40 in work week unless the employee falls under an exemption. See 29 U.S.C. § 207. One exemption is the so-called “White-Collar Exemption” for Executive, Administrative, and Professional employees.
To fall under the white-collar exemption, an employee must satisfy three requirements:
- Salary Basis Test: The employee must receive a salary (i.e., the same amount each week regardless of quantity or quality of work performed);
- Salary Level Test: The salary must meet the minimum threshold; and
- Duties Test: The employee must meet a duties test for the applicable exemption (executive, administrative, or professional).
The DOL’s Final Rule affects the minimum threshold for the Salary Level Test. Until 2016, the minimum salary threshold for that exemption stayed at $455 per week ($23,660 annually). After a failed update by the Obama-era DOL in 2016, the Trump-era DOL raised the threshold to $679 per week ($35,308 annually), where it currently sits until July 1.
Proposed Rule becomes Final
In September of last year, the DOL proposed a rule that would both significantly raise the threshold to $1,059 per week and automatically update the salary threshold every three years based on the latest earnings data. On April 23, 2024, the DOL released the final rule.
The DOL received over 30,000 comments since proposing its new rule, leading to small changes: it raises the final threshold (effective in 2025) higher than the proposed rule, and it drops a proposal to apply the new threshold to U.S. territories. To summarize, here’s what to expect:
- Effective July 1, 2024, the overtime salary exemption threshold for white-collar employees will rise to $43,888;
- Effective January 1, 2025, the threshold will rise to $58,656;
- The threshold will rise every three years automatically based on latest earnings data.
How to prepare
The new rule will likely face legal challenges, but employers should prepare for higher operating costs. Specifically, employers should contact their legal counsel, audit their current practices, and project the increased costs resulting from the Final Rule. A specific action item may include, among other things, (a) re-classify employees as non-exempt or (b) adjust salaries to meet or exceed the new thresholds.
Feel free to contact any attorney in Brunini’s Labor & Employment Practice Group with any questions or concerns.