On April 23, 2024, the Department of Labor ("DOL") announced its final rule expanding the Fair Labor Standards Act's ("FLSA") overtime protections for workers by increasing the salary thresholds required to exempt a salaried bona fide executive, administrative, or professional employee from overtime pay requirements. This Rule will become effective on July 1, 2024. As we noted in our previous ALERT here discussing the proposed rule, this Rule is estimated to make millions of more workers eligible for overtime pay beginning on July 1st.
The New (Final) Rule
This Rule makes three key changes to the FLSA exemptions:
- Increased salary for "white collar" employees: The minimum salary level for all white collar exemptions increases from $684 per week ($35,568 per year) to $844 per week ($43,888) on July 1, 2024, and increases again to $1,128 ($58,656) on January 1, 2025.
- Increased total compensation threshold for the Highly Compensated Employee ("HCE") exemption: The total annual compensation requirement for the HCE exemption increases from $107,432 to $132,964 on July 1, 2024, and increases to $151,164 on January 1, 2025.
- Automatic updating of salary levels every three years: In addition, this Rule requires that both the "white-collar" exemption salary threshold and the HCE salary exemption threshold be updated every three years from their original July 1, 2024 increases (noted above) by applying methodologies used to calculate these thresholds to include U.S. Census salary data and, thus, reflect earnings growth.
In contrast to the prior proposal here, this final Rule will not apply in the U.S. territories. However, with that sole exception, this Rule is consistent with the proposed rule, including, importantly, that there are no changes to the "duties" tests for an exemption – which examines whether an employee's actual job functions meet the requirements of the applicable exemption.
Takeaway
The DOL estimates that in just the first year under this final Rule, approximately four million workers will be impacted. Though it will likely face legal challenges, we encourage employers to prepare for this Rule over these next two months, by evaluating their current compensation practices and employee classifications in light of the new requirements.
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