U.S. Department of Labor Significantly Increases the Salary Threshold for Exempt Employees

Fair Labor Standards Act (FLSA) update

The U.S. Department of Labor has significantly increased the annual salary threshold for exempt status for executive, administrative, and professional employees under the Fair Labor Standards Act (“FLSA”). Effective July 1, 2024, the annual salary threshold will increase from the current threshold of $35,568 to $43,888. Effective January 1, 2025, the annual salary threshold will increase to $58,656. The U.S. Department of Labor will then increase the salary threshold every three years beginning in 2027. These changes are expected to substantially increase the number of employees who will be eligible to receive overtime pay.

Overview

Under the FLSA, employers must provide overtime pay at the rate of one and one-half times the employee’s regular rate of pay for every hour that the employee works in excess of 40 hours in a workweek, unless the employee qualifies for a specific exemption from the overtime rule. Among the most common exemptions are the executive, administrative, and professional exemptions, which are commonly known as the “white collar exemptions.”

To be eligible for the executive, administrative, or professional exemption, an employee must meet three criteria: (1) the employee must be paid on a salary basis; (2) the employee must be paid at least the minimum salary threshold established by the U.S. Department of Labor; and, (3) the employee must perform certain job duties.

Currently, the salary threshold for exempt employees is $35,568 per year. Starting July 1, 2024, the threshold will increase from $35,568 to $43,888 per year. It will then increase to $58,656 on January 1, 2025. These are significant increases.

Employer Takeaways

Employers should begin to review salaries for exempt employees to determine which employees will be affected by the upcoming changes to the salary threshold. Employers will need to decide whether to increase affected employees’ salaries to the new salary threshold in order to continue to meet the criteria for exempt status, or whether to convert affected employees from exempt to non-exempt status. For employees who are converted to non-exempt status, it will be critical for the employer to track work hours and to pay overtime wages for every hour of work in excess of 40 hours in a workweek. And, as a reminder, it will also be important to provide required meal breaks and rest breaks to employees who are converted to non-exempt status.

This change also presents a good opportunity for employers to review job descriptions for exempt employees to make sure that they are performing exempt job duties and to update job descriptions as needed to accurately reflect job duties for affected positions.

Employers with questions about compliance should contact legal counsel. If you have questions or need legal assistance on employment law, please contact Buckley Law attorneys Jillian A. Pollock or William E. Gaar at 503-620-8900.