April 23, 2024
Tara Paulson, Mark Fahleson, Julie Schumacher
Rembolt Ludtke Employment & Labor Law Practice Group
Today the U.S. Department of Labor released its final rule substantially increasing the minimum salary requirements for the executive, administrative, and professional employee exemptions from the Fair Labor Standard Act’s (“FLSA”) overtime pay requirements.
Effective July 1st, the rule will raise the salary threshold to $844 per week, which is equivalent to a $43,888 annual salary. Beginning January 1, 2025, the threshold jumps to $1,128 per week, or $58,656 per year. These new thresholds are significant increases over the current salary thresholds of $684 per week, or $35,568 per year.
Under the FLSA employees are entitled to overtime for all hours worked over 40 in a workweek unless the employee qualifies for an exemption. The most commonly used exemptions are called the white-collar exemptions, or EAP exemptions (EAP stands for “executive,” “administrative” or “professional” employee). While these terms are not defined in the FLSA, Congress delegated this responsibility to the U.S. Department of Labor. For employees to fall into the EAP exemptions from the FLSA’s overtime requirements, the employee must meet all three of the following requirements:
1. Be paid on a salaried basis. This requires that the employee be paid the same amount each workweek irrespective of the quantity or quality of work performed;
2. Be paid the specified minimum salary. Currently the required minimum salary is $684 per week ($35,568 annually). This is what the DOL’s new overtime rule substantially increases; and
3. Meet a duties test for the applicable exemption.
The duties test for the executive exemption requires that the employee’s primary duty must be managing the enterprise or subdivision of the enterprise and the employee must supervise two (2) or more full-time employees or their equivalents. The duties test for the administrative exemption requires that the employee’s primary duty must be the performance of office or non-manual work directly related to the management or business operations of the employer and include the exercise of discretion and independent judgment with respect to matters of significance. The duties test for the professional exemption requires the employee’s primary duty to be the performance of work predominantly intellectual in character and requiring advanced knowledge in the fields of science or learning.
A separate, but related, exemption for Highly Compensated Employees (“HCE”) also exists. This exemption applies if: (1) the employee’s salary meets the minimum salary threshold (currently $684/week); (2) the employee’s total annual compensation meets an elevated threshold (currently $107,432/year); and (3) the employee customarily and regularly performs any one or more of the EAP exempt duties.
As noted above, the final rule increases the minimum salary thresholds for the EAP exemptions as follows:
July 1, 2024-------------$844/week, or $43,888/year
January 1, 2025--------$1,128/week, or $58,656/year
July 1, 2027,------------Automatically increased applying indexing method
and every 3 years
thereafter
For the HCE exemption, the total compensation requirements increase as follows:
July 1, 2024-------------$132,964/year
January 1, 2025--------$151,164/year
July 1, 2027,------------Automatically increased applying indexing method
and every 3 years
thereafter
While it is anticipated that the new rule will be challenged in court, employers should prepare to comply with the new rule nonetheless. Employers of overtime-exempt employees who make less than the new minimum salary thresholds will need to either: (a) re-classify employees as non-exempt (which requires employees to start clocking in and out so hours worked are accurately tracked); or (b) adjust salaries to meet or exceed the new thresholds.
The Rembolt Ludtke Employment & Labor Law Practice Group is available to assist employers with compliance with the FLSA and any required changes related to the final overtime rule.
This article is provided for general information purposes only and should not be construed as legal advice. Those requiring legal advice are encouraged to consult with their attorney.
