by | Apr 24, 2024

The Department of Labor released its Final Rule that raises the salary threshold for employees to be exempt from overtime requirements as an Executive, Administrative, or Professional under the Fair Labor Standards Act. Under these “white collar” exemptions, overtime requirements do not apply if the employee (1) performs certain exempt duties; and (2) is paid on a salary basis; (3) that exceeds a certain salary threshold. This Final Rule creates a schedule for multiple increases:

    • Current Threshold: $684/week (equivalent to $35,568/year)
    • July 1, 2024: $844/week (equivalent to $43,888/year)
    • January 1, 2025: $1,128/week (equivalent to $58,656/year)
    • July 1, 2027, and every three years following: Automatic escalation based on application of data to an established methodology.

The Final Rule also increases the salary threshold for Highly Compensated Employees to be exempt. The current threshold is $107,432/year, which is set to rise to $132,964/year on July 1, 2024, and to $151,164/year on January 1, 2025, with automatic increases after that.

Employers should initiate steps in response to the DOL’s Final Rule:

    • Identifying exempt employees within the affected zone. Employers should audit their workforce to determine which employees may be affected by the proposed rule—i.e., those who make more than $684 per week ($35,568 per year) but less than $1,128 per week ($58,656 per year).
    • Beginning to track working hours for employees within the affected zone. It may be helpful to begin tracking hours for these employees, even though they remain exempt unless and until the Final Rule goes into effect in July (and again in January). This will provide helpful information throughout the decision-making process about the financial and operational impact of any changes. For example, if converted to hourly would the employee regularly be entitled to overtime pay? If so, what is the estimated financial cost? Or what is the operational impact of having that employee work fewer hours?
    • Developing a plan for employees within the affected zone. Employers will be tasked with deciding whether to give affected employees a pay increase to at least the new salary threshold; convert the employee to non-exempt status; or continue to pay the employee on a salary basis but require timekeeping to ensure overtime pay is provided as needed. Employers should consider the operational impact, financial cost, and potential effect on morale given that many employees prefer exempt status, among other things.
    • Reviewing current job duties. While the proposed rule does not change the duties test, improper job duties that do not fit within an exception, or are outdated, can undermine an exemption. The Final Rule affords employers with an excellent opportunity to audit its workforce and re-classify exempt employees whose duties may not fit within an exemption.

The DOL estimates that approximately 4 million employees will be affected by these increases. A copy of the Final Rule can be found here. If you have questions regarding the Final Rule, please contact Torrey J. Gerdes, Susan M. Foster, Melanie Whittamore-Mantzios, or Christopher M. Schmidt at 402-475-1075.