DOL Final Rule Significantly Increases Salary Threshold for Overtime Exemption

On April 23, 2024, the U.S. Department of Labor (DOL) published its long-awaited final overtime rule, which substantially increases the minimum salary required for the “white collar” overtime exemptions under the Fair Labor Standards Act (FLSA).

To be considered exempt from overtime pay under the FLSA, an employee must (i) meet a duties test, (ii) be paid on a salary basis, and (iii) be paid at least the applicable salary threshold. The final rule increases the salary threshold as follows:

• The minimum salary required for the executive, administrative, or professional exemption will increase from the current $684 per week ($35,568, annualized) to:
  • $844 per week ($43,888, annualized) effective July 1, 2024;
  • $1,128 per week ($58,656, annualized) effective January 1, 2025; and
  • Automatic adjustments to the salary threshold will be made every three years beginning on July 1, 2027.
• The minimum annual salary required for an employee to qualify for the “highly compensated employee” exemption will jump from the current $107,432 to $132,964 on July 1, 2024 and to $151,164 on January 1, 2025. The highly compensated employee salary threshold will also be updated every three years.

• Notably, the final rule does not change any of the current job duty requirements for the overtime exemptions.

Keep in mind that some jurisdictions have adopted salary thresholds that are more generous than the FLSA threshold. For example, the 2024 annualized salary threshold under California law is $66,560 and under New York law is $67,600. In these jurisdictions, the impact of the new federal rule will likely be minimal. However, other state thresholds that used to exceed the federal salary threshold will no longer do so. For example, the annualized salary threshold under Maine law is $42,450, which currently exceeds the federal threshold but will fall below the federal threshold as of July 1, 2024. Therefore, Maine employers will have to use the new federal threshold rather than the state threshold.

The DOL’s final rule will likely be challenged in court. The deadline for the first increase to the salary threshold is July 1, 2024 – a little more than 60 days from now. Many of us remember November 2016 DOL's final rule that imposed a significant increase in the salary threshold was blocked by a Texas court just a few days before it was scheduled to go into effect. Unfortunately, by the time that decision was issued, many employers had already either increased salaries to meet the higher salary threshold or reclassified employees.

Given that painful history, employers should consult with employment counsel to discuss how to navigate the uncertainty leading up to the new July 1, 2024 effective date. We also recommend reviewing your current exempt salaries to determine how this change may affect your workforce. However, it may be prudent to wait before making any changes, as litigation is likely.

We will continue to monitor developments on this topic and will discuss this important development at our May 30, 2024 half-day legal update. In the meantime, for questions about the DOL’s final rule and how it might affect your organization, please contact Pierce Atwood employment law attorneys Suzanne King, Peter Hale, Katie Porter, Katy Rand, Dan Strader, or Soyoung Yoon.