On April 23, 2024, the Department of Labor (DOL) introduced a pivotal final rule, heralding significant adjustments to the salary thresholds governing specific overtime exemptions outlined within the federal Fair Labor Standards Act (FLSA). This regulatory measure is poised to impact approximately 4 million employees, potentially altering their exempt status under the FLSA. Consequently, employers are compelled to either increase the salaries disbursed to such employees to uphold their exemption status or reclassify their roles as non-exempt, thereby entailing compensation on an hourly basis along with the provision of overtime pay.
The FLSA, a cornerstone of labor legislation, outlines the obligation of employers to compensate employees with a minimum wage and, for individuals laboring beyond 40 hours per week, overtime pay equivalent to at least 1.5 times the regular rate of pay.
The focal point of this regulatory adjustment hinges on explaining specific categories of employees exempted from the FLSA’s overtime requisites. The newly instituted rule casts its purview over individuals engaged in roles that align with the executive, administrative, professional, and highly compensated employee exemptions. While adherence to various other criteria as stipulated within the FLSA and its ancillary regulations is incumbent, the compensation accorded to employees must surpass certain predetermined thresholds.
Understanding the prevailing salary thresholds for FLSA exemptions is instrumental in comprehending the nuances of this regulatory overhaul. Presently, the salary thresholds for executive, administrative, and professional employees stand at $684 per week, translating to an annual sum of $35,568. Concurrently, the threshold for highly compensated employees resides at $107,432 annually. It is imperative to underscore that these benchmarks are exclusive to the FLSA, with numerous states imposing more stringent stipulations necessitating compliance above and beyond the FLSA requirements.
Investigating into the specifics of the amended salary thresholds and their slated implementation timeline, it is imperative to delineate the effective date of the final rule as July 1, 2024, with certain provisions slated to come into effect on January 1, 2025. Commencing July 1, 2024, the final rule mandates an elevation of the threshold for bona fide executive, administrative, and professional employees to $844 per week, equating to an annualized figure of $43,888. Simultaneously, the annual compensation threshold for highly compensated employees is slated to ascend to $132,964.
Come January 1, 2025, an additional revision to the salary thresholds will ensue. This repetition will escalate the threshold for bona fide executive, administrative, and professional employees to $1,128 per week, amounting to an annualized sum of $58,656. This adjustment pegs the standard salary level at the 35th percentile of weekly earnings among full-time salaried workers in the lowest-wage Census Region. Moreover, the annual compensation threshold for highly compensated employees will be raised to $151,164 annually, aligning with the total annual compensation threshold equivalent to the annualized weekly earnings of the 85th percentile of full-time salaried workers nationally.
Moreover, a mechanism for automatic updates to the salary thresholds, set to commence on July 1, 2027, and recur every three years thereafter, has been enshrined within the final rule. This periodic recalibration will be orchestrated utilizing the methodology prevalent at the time of each respective update.
We are vigilant in monitoring of the final rule’s implementation, as we expect it will be challenged. We’re here to help you understand and adapt to these changes. If you have any questions or concerns, please reach out to us. We’re committed to making this transition as smooth as possible for everyone.