Get Ready: The DOL’s New Salary Threshold Could Make More of Your Employees Eligible for Overtime

The Department of Labor (DOL) has recently announced pivotal changes to the salary thresholds for exempt employees under the Fair Labor Standards Act (FLSA), which will significantly impact employers and "white collar" workers across the nation. These adjustments aim to reflect changes in wage growth and inflation, ensuring that employees receive fair pay for their level of responsibility, expertise, and time. 

Two Steps to a New Standard 

This adjustment will roll out in two phases. Beginning July 1, 2024, the minimum salary threshold for exempt employees will increase to $844 per week or $43,888 annually. This is a significant raise from previous figures and sets a new baseline for compensating executive, administrative, and professional employees. The changes include another increase scheduled for January 1, 2025, when the threshold will further rise to $1,128 per week or $58,656 annually.

According to the DOL, the higher salary floor will impact approximately four million workers in its first year of implementation and cost employers $810 million over the next ten years. It's important to note that these thresholds will automatically adjust every three years to align with economic changes and wage patterns, ensuring sustained relevance to the cost of living. 

Criteria for Exemption: Who Is Affected

To qualify for exemption from overtime, employees must be paid a salary of at least the threshold amount and meet certain duties tests. The DOL requires that an employee’s job duties must primarily involve executive, administrative, or professional tasks as defined by the FLSA. This means that merely paying an employee above the threshold does not automatically exempt them from overtime; their job responsibilities must also align with the standards set forth by the law. If they are paid less or do not meet the tests, they must be paid 1.5 times their hourly rate for hours worked in excess of a 40-hour workweek. 

Impact on Highly Compensated Employees 

The new rule also revises the compensation requirements for "highly compensated employees" (HCEs). After January 1, 2025, employees who are deemed highly compensated must earn at least $151,164 annually to qualify for exemption. This increase is intended to reflect the top echelon of earners and maintain a threshold that corresponds to their high level of compensation.

Implications for Employers 

Employers must now review and potentially adjust their payroll structures to comply with the new regulations. This may involve reclassifying certain employees as non-exempt or adjusting salaries to meet the new thresholds. It's also a critical time for employers to review job descriptions and duties to ensure they accurately reflect the criteria necessary for exemptions.  

Be Proactive and Stay Informed

It is still possible that a federal court will enjoin the DOL from enforcing the new salary threshold in January. The rule is currently facing legal challenge in Texas, and the upcoming presidential election adds to its complexity. A change in administration could result in a change in the DOL's opinion. This leaves employers in a difficult position of preparing to comply while the ruling’s finality is still uncertain. 

For now, employers should act proactively to align their practices with these new thresholds to avoid compliance issues and foster a fair and equitable workplace. Employers must also consider how this rule will fit in with state-specific exemptions and salary levels. As always, consulting with an experienced employment attorney can provide guidance tailored to your specific situation, our firm is here to help you navigate these changes with confidence and strategic foresight.