Changes to Minimum Salary for Employees Exempt from Overtime

The Department of Labor recently finalized changes to rules regarding the minimum salary that must be paid to employees in order to be exempt from overtime under the Fair Labor Standard Act ("FLSA").  

Why Does Exempt Status Matter?

Exempt employees are not entitled to overtime.  In contrast, non-exempt employees are entitled to overtime at 1.5 times their regular rate for hours worked over 40 in a workweek. Some states have their own additional overtime thresholds, and non-exempt employees in those states may have additional rights to overtime pay. 

Salary is Not the Whole Picture

In order to be exempt from overtime, the employee must also meet certain job duties tests described in the FLSA, in addition to the minimum salary thresholds.  A common mistake made by employers is to think that no overtime is due if the employee receives a salary.  This error can be very costly and lead to misclassification and overtime lawsuits against the employer.  

Current Salary Threshold

Three common exemption categories under the FLSA are the executive, administrative, or professional exemptions, which are often referred to as the “white-collar” exemptions. Right now, the minimum salary for an employee to meet the salary criteria of the white-collar exemptions is $35,568 per year (which works out to a minimum of $684 per week).  

New Thresholds

Effective July 1, 2024, the salary threshold will increase to an annual salary of $43,888 (which works out to a minimum of $844 per week).  This threshold will increase to $58,656 on January 1, 2025 (which works out to a minimum of $1,128 per week). 

Highly Compensated Employee

Another exempt category under the FLSA is the so-called “highly compensated employee" ("HCE").  The HCE exemption is available if the employee earns the minimum HCE salary, and customarily and regularly performs at least one of the exempt duties or responsibilities under the FLSA. 

Effective July 1, 2024, the minimum salary test to qualify under the HCE exemption shall increase from the current $107,432 threshold to $132,964.  This threshold will increase again effective January 1, 2025, to $151,164. 

Employers Should Plan Ahead

As can be seen from the above, some of the increases are significant.  Employers need to start planning now to address the impact that the new rules will have on their budgets.  

Lastly, employers should review regularly the job duties of their employees, and seek legal guidance if needed so that they are classifying their employees correctly when it comes to exempt v. non-exempt status.