25 Apr FINAL DOL RULE INCREASES MINIMUM SALARY LEVEL NECESSARY FOR EMPLOYEES TO QUALIFY AS EXEMPT FROM OVERTIME
On April 23, 2024, the Department of Labor (“DOL”) published its Final Rule significantly increasing the minimum salary that an employee must receive to qualify as being exempt from overtime pay requirements under the Fair Labor Standards Act (“FLSA”).
By way of background, the FLSA, among other things, requires employers to pay most employees overtime pay of 1.5 times their regular rate of pay for any hours worked in excess of 40 in a workweek. The FLSA, however, exempts certain categories of employees from its overtime requirements, including executive, administrative, and professional employees. These employees are commonly referred to as “white collar” employees. To qualify as exempt from the FLSA’s overtime requirements, a white collar employee must: (1) perform certain job duties (the “duties” test); (2) be paid a pre-determined fixed amount that cannot be reduced based on work quality or quantity (the “salary basis” test); and (3) earn a minimum salary that is above DOL determined levels (the “salary level” test).
The Final Rule raises the minimum salary a white collar employee must make to satisfy the salary level test. The current salary level is $684 per week ($35,568 annually). The Final Rule increases the current salary level in two phases: (1) starting July 1, 2024, the salary level will increase to $844 a week ($43,888 annually); (2) starting January 1, 2025, the salary level will increase to $1,128 per week ($58,656 annually). Thereafter, the Final Rule provides for updates to the salary level every three years, which are likely to lead to further increases.
The Final Rule also increases the minimum salary that highly compensated employees (“HCEs”) must receive to qualify as exempt from overtime pay requirements. Currently, HCEs are exempt if they earn at least $107,432 per year and perform at least one executive, administrative, or professional job duty. The Final Rule increases the salary level for HCEs to $132,964 on July 1, 2024, and to $151,164 on January 1, 2025.
The Final Rule will undoubtedly face challenges in court. In 2016, for instance, an attempt to raise salary levels was invalidated by a court shortly before it was scheduled to take effect. Since 2016, other developments have occurred giving hope to the possibility that the Final Rule will not withstand legal scrutiny. For instance, in a recent dissenting opinion involving the FLSA, Justice Brett Kavanaugh raised questions as to whether the DOL holds any authority to set salary levels.
While lawsuits challenging the Final Rule are all but certain, employers cannot bank on the Final Rule being enjoined or struck down by a court. Accordingly, employers should take steps in preparation for the Final Rule to take effect beginning on July 1, 2024. These steps include, but are not limited to: (1) creating a list of all exempt employees who currently earn between $35,568 and $58,656 per year; and (2) analyzing whether to raise the salary of an employee on the list so that they meet the new salary level announced by the Final Rule, or whether to convert the employee to non-exempt status. In addition, the changes announced by the Final Rule provide a good opportunity for employers to review whether their white collar exempt employees meet the duties test.
While they should begin taking steps to ensure compliance with the Final Rule, employers may wish to hold off on implementing any changes for as long as possible in order to give the likelihood of court challenges the time to play out.
As always, Masud Labor Law continues to monitor the Final Rule, and will provide updates on any key developments. In the meantime, if you have any questions regarding the Final Rule, or FLSA overtime requirements and exemptions in general, please do not hesitate to contact us.