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Millions of additional employees will soon be eligible for federal overtime because of the Department of Labor’s April 23 Final Rule. Under the Fair Labor Standards Act (FLSA), certain salaried employees are exempt from federal minimum wage and overtime requirements if they are employed in a bona fide executive, administrative, or professional (EAP) capacity. This is sometimes called the “white collar” exemption. The Final Rule:

  • Increases the minimum salary requirement for the EAP exemption from $684 per week ($35,568 annualized) to $844 per week ($43,888 annualized) effective July 1, 2024 and to $1,128 per week ($58,656 annualized) effective January 1, 2025; and
  • Increases the minimum total annual compensation level for exemption as a “highly compensated employee”—e.g., one who customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee—from $107,432 to $132,964 effective July 1, 2024 and to $151,164 effective January 1, 2025.

In addition to these substantial increases to the salary floor for the EAP and the highly compensated employee exemptions, here are 5 things employers need to know:

1. The Floor Will Keep Moving Up Automatically

In addition to these immediate increases, the Final Rule also includes automatic increases to the annual earnings thresholds every three years. The first update is scheduled for July 1, 2027, with additional automatic updates occurring every three years thereafter.

2. Not All FLSA Exemptions Are Impacted

There are no changes to the minimum salary exceptions for teachers, academic administrative employees, lawyers, and physicians, or to the alternative method of paying computer employees on a minimum hourly basis. Also, the Final Rule does not affect the outside sales or inside retail sales exemptions (which are not subject to a salary threshold).

3. The Job Duties Tests Did Not Change

Recall that the salary alone does not determine whether an employee qualifies for a white collar exemption. Instead, to be eligible for an exemption, the employee’s primary job duties must also meet the applicable duties test, which varies based on exemption. The Final Rule made no changes to the duties tests; find a link to those exemption tests here.

4. Don’t Forget About State Law

DOL’s Final Rule does not displace state and local minimum wage or overtime laws, which may impose more onerous requirements. It’s imperative to ensure that your exempt employees are being paid the minimum salary basis at both the state and federal level. For example, the minimum salary threshold in New York City and surrounding counties for exempt executive and administrative employees is $62,400. And in New York State, it is $58,459. Those thresholds gradually increase each year through 2026.

5. Legal Challenges Are Likely But It’s Safest To Prepare Now

Like its predecessors, the Final Rule will probably face legal challenges. Nonetheless, as the deadline is quickly approaching, we recommend preparing now.

  • Employers should review current employee classifications and pay practices, and identify which employees will be affected by the new thresholds before July 1. Then, develop a plan for either increasing salaries or reclassifying affected employees to non-exempt (i.e., eligible for overtime).
  • Now is a good time to audit exempt jobs for compliance with all exemption criteria (that is, the employee meets the salary basis test, is paid at least the designated minimum salary and satisfies the applicable duties test) in partnership with counsel. Should reclassification decisions result from the audit, there’s a lot to think through, including tracking non-exempt time, regular rate calculations (including whether to include incentive and bonus pay), impact on employee morale and how to communicate the reclassification to employees. For more, contact a member of our team, which includes seasoned litigators steeped in wage and hour experience.