On April 23, the Department of Labor (DOL) released a final rule raising the salary thresholds for certain overtime exemptions under the federal Fair Labor Standards Act (FLSA). See the commentary and final rule, as well as the DOL’s FAQ.

Key Takeaways

• The FLSA exempts executive, administrative, and professional employees from receiving overtime based on a combination of factors: whether the employee is paid a salary, the size of the salary and the employee’s duties.
• The new rule increases the salary thresholds for employees in these groups to be exempt from the FLSA’s overtime requirements.
• On July 1, 2024, the following increases go into effect:
  • The salary threshold for FLSA exemptions for executive, administrative, and professional employees will increase to $855/week ($43,888/year) from $684/week ($35,568/year).
  • The salary threshold for FLSA exemptions for highly compensated employees will increase to $132,964/year from $107,432/year.
• Another set of increases go into effect on January 1, 2025, based on the adoption of a new methodology:
  • The salary threshold for FLSA exemptions for executive, administrative, and professional employees will increase to $1,128/week ($58,656/year).
  • The salary threshold for FLSA exemptions for highly compensated employees will increase to $151,164/year.
• Beginning July 1, 2027, the salary thresholds will automatically update every three years.

Next Steps

• Between now and July 1, 2024, perform an assessment of your employees to determine which employees will be impacted by these two sets of increases.
• If the salaries of currently exempt employees will fall below the new threshold, consider a pay increase to maintain their exempt status.
• If you do not want to raise the salaries, convert the employees to nonexempt status. Evaluate options for minimizing the overtime spend on them, such as:
  • reduce or eliminate hours for those employees who would otherwise be newly eligible for overtime pay; or
  • reduce the amount of pay allocated to the employee’s base pay (ensuring that the employee still earns at least the applicable hourly minimum wage) to offset new overtime pay.
• For employees being converted to a non-exempt status, consider whether an alternate method of paying base and overtime pay may be appropriate, allowing employers to retain some flexibility and allowing the employees to retain the feel of a consistent base salary.
  • One such method is the “fixed salary” method, where the employee is paid a consistent salary for a set number of hours per week. The employee is paid time-and-one-half the regular rate for any hours in excess of 40; if the set number of weekly hours is under 40, then the employee is also paid the straight-time hourly rate for hours between the set number and 40. 
  • Another option is the “fluctuating workweek” method, where an employee is paid a set weekly salary that does not change regardless of the number of hours an employee works in a given week, but also receives overtime at the rate of only one-half the regular rate for weeks when the employee works more than 40 hours. 
  • These methods require careful documentation and payroll setup, and are permitted in most but not all states.
• For any newly nonexempt employees, implement procedures for tracking overtime hours and paying overtime to these newly eligible employees. The FLSA allows employers flexibility in recording overtime.