On April 23, 2024, the U.S. Department of Labor (DOL) announced a final rule increasing the minimum salary threshold required for employees to be exempt from federal overtime rules. Beginning July 1, 2024, the minimum salary threshold will increase to $43,888, followed by a second increase to $58,656 on January 1, 2025. After 2025, the threshold will automatically increase every three years in accordance with average earnings. The rule will impact approximately 4 million salaried employees.
To be classified as exempt from the federal overtime rules, employees must make the minimum salary threshold, currently $35,568, and meet one of the Fair Labor Standards Act’s (FLSA’s) duty tests. The best-known duty tests are the “white collar exemptions,” which include exemptions for employees engaging in bona fide executive, administrative, or professional functions. With the new rule, employers will need to either increase the salaries of employees who meet a duty test or convert the employees to non-exempt and pay overtime when employees work more than 40 hours in a week or as required by state or local rules.
Employees earning more than $107,432 and meeting a minimum duties test were exempt under the FLSA’s special rule for highly compensated employees. The DOL’s final rule increases the highly compensated threshold to $132,964 beginning July 1, 2024, and $151,164 on January 1, 2025.
The rule’s release comes after months of development and discussion. A preliminary rule was released in September 2023, and the DOL considered more than 33,000 comments. This is the DOL’s second attempt at increasing the salary threshold. A 2016 increase was struck down by a Texas federal judge who held the rule violated federal wage law. This rule will likely face similar challenges.
Several states, including Colorado, have minimum salary thresholds higher than the federal requirement. Employers in all states should review their workforce to determine which employees will need to be converted to non-exempt or receive raises to maintain their classification and stay in compliance by the July 1 deadline. Employers Council attorneys and HR professionals can help Consulting and Enterprise members with this process. Contact us at info@employerscouncil.org.
Maggie Roddy is an employment law staff attorney for Employers Council.