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DOL Announces Substantial Increases In the Salary Threshold For Exempt Employees

 DOL Announces Substantial Increases In the Salary Threshold For Exempt Employees - Buelow Vetter Buikema Olson & Vliet

On April 23, 2024, the Department of Labor (DOL) announced its final rule significantly increasing the salary threshold to qualify for certain exemptions under the Fair Labor Standards Act (FLSA).  The new rule goes into effect July 1, 2024. This change will have significant implications on which employees are entitled to overtime pay and may require alterations to compensation structures in various employment sectors relying heavily on the use of exempt staff.

Unless an exemption applies, the FLSA requires payment of overtime for all hours worked in excess of forty (40) in one workweek. “Exempt employees” are not subject to this overtime requirement and fall into three general categories:  executive, administrative, and professional.  To qualify as an exempt employee, the employee must meet both parts of a two-part test: 1) Perform certain exempt functions and 2) be paid on a salary basis at or above the minimal annual salary amount. If the employee does not meet either portion of the test, the employee must be paid overtime for hours worked over forty (40) in one workweek.

This new rule significantly increases the second prong of the test – i.e., the minimal annual salary – and will be implemented in two steps.  The current minimum salary is $684 per week ($35,568 per year).

  • On July 1, 2024, the minimum salary will increase to $844 per week ($43,888 per year).
  • On January 1, 2025, the minimum salary will increase to $1,128 per week ($58,656 per year).

This is a significant increase from the current threshold and will  require businesses to re-evaluate whether their exempt employees  remain exempt from overtime in light of the new wage thresholds.

Further, the rule raises the total annual compensation requirement for the highly compensated employee exemption from $107,432 to $132,964 by July 1, 2024, and to $151,164 by January 1, 2025.

Finally, the rule contains a provision by which these earning thresholds will be automatically increased every three years to provide consistency with expected wage increases.  The updates will begin on July 1, 2027, and then occur every three years thereafter.

The new final rule could face legal challenges, which could delay implementation.  However, employers should not delay their plans to respond to the implementation.  In preparation for both the July 1, 2024, and January 1, 2025, increases, employers should begin the process of auditing their exempt employee salaries and identifying employees who may be subject to overtime pay if their salaries do not increase to meet the new thresholds. Employers may want to modify compensation for exempt employees earning more than $35,568 per year but less than the exemption minimum of $58,656. Otherwise, employers may want to consider reclassifying such employees, to the extent such reclassification is in compliance with the FLSA.

If you have any questions about this Legal Update, please contact:
Attorney Joel S. Aziere, 262-853-0600, jaziere@buelowvetter.com
Attorney Christina A. Katt, 414-309-8144 ckatt@buelowvetter.com
or your Buelow Vetter attorney

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