DOL Raises the Bar to New Heights for FLSA Exemption Salaries

On April 26, the Wage and Hour Division of the United States Department of Labor published a Final Rule titled “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees” (Final Rule).

The Final Rule impacts the executive, administrative, and professional (EAP) as well as the highly compensated employee (HCE) overtime exemptions of the Fair Labor Standards Act and became effective July 1.

The EAP exemptions to the FLSA’s minimum wage and overtime pay requirements affect employees who are paid a fixed salary that is above a certain threshold, and hold a position involving primarily executive, administrative, or professional duties.

Effective July 1, the Final Rule narrows the exemptions and renders millions of workers, who are currently classified as overtime, exempt under the DOL regulations and eligible for overtime pay in accordance with the FLSA. According to the Final Rule, there will be no changes to the existing job duties requirement for either exemption; the major change is in the methodology used to calculate the salary thresholds.

The DOL is phasing this change in three rounds. The standard salary levels will change as follows:

  • Effective July 1, to maintain overtime exempt status, an employee in the EAP category will have to earn at least $844 per week ($43,888 per year), and, beginning Jan. 1, 2025, the amount increases to $1,128 per week ($58,565 per year).
  • For the HCE exemption, the threshold will be $132,964 per year starting on July 1, 2024, and increase to $151,164 per year beginning Jan. 1, 2025.
  • On July 1, 2027, and every three years thereafter, the salary levels will be determined based on the new methodology applied to the data available at that time.

Increases in the salary levels applicable to overtime exemptions are not new – the DOL has increased them from time to time since 1940 – but the most recent attempts to increase the minimum salary requirements have faced heavy opposition in federal courts.

The 2016 DOL regulation, which included similar increases as the current 2024 Final Rule, was invalidated by a federal court in the Eastern District of Texas. Shortly after the Federal Register published the current Final Rule, concerned entities –  including a coalition of prominent national and regional associations, individual businesses and the state of Texas – initiated an action against the implementation of this regulation.

Currently, there are two separate lawsuits contesting the authority of the DOL to make the changes contained in the Final Rule, both in federal courts in Texas. The actions are seeking to eventually set the Final Rule aside, but also a temporary injunction that would enjoin the rule from taking effect until the court reaches its final decision.

On June 28, the U.S. District Court for the Eastern District of Texas issued an order that temporarily enjoins the rule from going into effect, but only for the State of Texas as an employer. Accordingly, the rule is currently in effect for the rest of the country.

The United States Court of Appeals for the Fifth Circuit also has on its docket a case revolving around the authority of the DOL to even include a salary requirement in its test for determining whether employees employed in bona fide EAP positions are qualified for the overtime exception under the FLSA. The case, Mayfield v. U.S. Department of Labor, is calendared for oral argument on August 7, 2024.

What should employers expect?
Employers across the country have to implement procedures to review their workforce, identify those employees whose status will be affected, and make decisions regarding compensation adjustments or reclassifications to maintain compliance with the new norms.

Especially in the case of those employees who frequently work overtime and their salary level is close to the new threshold, an employer might find it prudent to consider raising their compensation to maintain their exempt status or, correspondingly, to contemplate re-classifying those employees who rarely work overtime and are far from reaching the new salary requirements.

According to the Wage and Hour Division of the DOL, employers have other ways to respond to the new requirements that would soften the blow of the implementation of the new norms, such as reducing or eliminating overtime hours from their internal policies, reassessing the amount allocated to employees’ base salary in their compensation packets, or a combination of actions.

The DOL reminds employers that they must inform their employees of the changes that are being made and mentions that employers are allowed to start applying the January 2025 provisions effective July 1, 2024, if they wish to do so to ensure compliance. In order to successfully navigate the fast-changing environment of labor and employment regulations, and ensure compliance with federal, as well as state and local wage and hour regulations, employers should work closely with their legal counsel to stay informed about the changes affecting their business and workforce.

Jeremy Edelson

With a focus on state and federal labor laws, Laner Muchin Partner Jeremy L. Edelson offers legal guidance on issues such as discrimination and contract drafting, and supports unionized employers through grievance management and training.

Mira Radu is a law clerk at Laner Muchin.