IS YOUR COMPANY READY FOR THE JULY 1, 2024 INCREASE IN THE SALARY THRESHOLD FOR NON-EXEMPT EMPLOYEES UNDER THE FLSA?
The U.S. Department of Labor (DOL) published a Final Rule on April 26, 2024, increasing the salary threshold for an employee to be classified as exempt from the Fair Labor Standards Act (FLSA) (i.e., not eligible for overtime). The first increase becomes effective July 1, 2024, followed by a second increase effective January 1, 2025. The Final Rule also includes a mechanism by which salary thresholds will continue to increase beginning July 1, 2027, and every three years thereafter. The increase affects the standard “white collar” exemptions (executive, administrative, professional, and some computer employees) as well as the Highly Compensated Employee exemption.
The “default” classification of an employe under the FLSA is non-exempt (i.e., eligible for overtime), and employers bear the burden of showing that an exemption applies. To determine whether a particular employee should be classified as exempt or non-exempt under the executive, administrative, professional, and some computer employee exemptions, two tests must both be satisfied: (1) the salary threshold test, and (2) the job duties test. The Highly Compensated Employee exemption sets an even higher salary threshold, plus the customary and regular performance of at least one of the job duties that qualifies for an executive, administrative, professional, or a certain computer employee exemption.
The DOL’s Final Rule does not impact the job duties test, and those requirements remain the same. The Final Rule, however, markedly increases the salary thresholds beginning July 1, 2024 and they will continue to rise, as summarized in the chart below:
| EFFECTIVE DATE | STANDARD “WHITE COLLAR” SALARY THRESHOLD (Executive, Administrative, Professional, and some Computer Employee exemptions) | HIGHLY COMPENSATED EMPLOYEE EXEMPTION TOTAL ANNUAL COMPENSATION THRESHOLD |
| Before July 1, 2024 | $684 per week (equivalent to $35,568 per year) | $107,432 per year, including at least $684 per week paid on a salary or fee basis. |
| As of July 1, 2024 | $844 per week (equivalent to $43,888 per year) | $132,964 per year, including at least $844 per week paid on a salary or fee basis. |
| As of January 1, 2025 | $1,128 per week (equivalent to $58,656 per year) | $151,164 per year, including at least $1,128 per week paid on a salary or fee basis. |
| Beginning July 1, 2027, and every 3 years thereafter | To be determined by applying to available data the methodology used to set the salary level in effect at the time of the update. | To be determined by applying to available data the methodology used to set the salary level in effect at the time of the update. |
To prepare for the July 1, 2024 and January 1, 2025 increases, HGRS recommends that employers identify all employees who are compensated between $35,568 and $58,656 and review how much overtime is worked by each. By comparing future anticipated overtime costs against the salary increase necessary to remain classified as exempt, employers can estimate whether raising a particular employee’s salary to satisfy the new threshold or reclassifying the employee as non-exempt makes more financial sense.
In states with pay equity laws, increasing salaries for FLSA purposes may necessitate similar increases to comply with the applicable pay equity requirements. When setting or restructuring your company’s current compensation structure, also keep in mind how the future increases will come into play. California, Washington, and New York already have exempt salary thresholds above the new July 1, 2024 threshold (but not above the January 1, 2025 threshold), which provides a little breathing room in those states.
Other aspects of the FLSA remain unchanged. Exempt employees under these exemptions must be paid on a “salary basis.” Employers may also continue to use nondiscretionary bonuses and incentive payments to satisfy up to 10% of the salary level in certain circumstances. Further, employers’ recordkeeping requirements for all non-exempt employees stay the same.
The FLSA is a technical statue that can be tricky for employers to comply with. Please contact HGRS to consult with an experienced attorney to ensure your company remains in compliance.
Elizabeth M. Newton, May 2024