U.S. Dept of Labor Issues Final Rule to Raise Minimum Salary Amount Employers Must Pay to Avoid Paying Overtime Under the Fair Labor Standards Act

In Employment Law, Labor, News by David P. Pierce

On April 23, 2024, the U.S. Department of Labor (DOL) issued its final rule to raise the minimum salary amount employers must pay to exempt employees to avoid paying overtime under the Fair Labor Standards Act (FLSA).  Effective July 1, 2024, employers must pay certain salaried employees in the United States, who are classified as exempt, including those who take advantage of the common executive, administrative, and professional (EAP) exemptions, the equivalent of $844/week or $43,888/year to avoid overtime requirements.  The previous threshold amount was $35,568/year. According to the DOL, the new salary level is being set at the 35th percentile of weekly earnings of full-time salaried workers in the lowest Census Region in the United States.

Additionally, effective July 1, 2024, the DOL raised the salary threshold employers must pay employees classified as exempt as highly compensated employees (HCE) from $107,432 to $151,164.  This amount is the 85th percentile of full-time salaried workers nationally.

The DOL’s final rule will undoubtedly face significant legal and political challenges as did a similar rule that was promulgated in 2016. That rule became the subject of a court injunction https://www.coollaw.com/blog/2016/11/halted-court-stops-dol-overtime-rules-from-taking-effect/ and ultimately the newly elected administration decided not to pursue its implementation. However, if the rule remains in effect, the foregoing salary amounts will again increase significantly on January 1, 2025.  At that time, the EAP salary threshold will increase to $1,128/week or $58,656/year and the HCE minimum salary will go up to $151,164/year.

The DOL estimates that approximately one million EAP exempt employees will be impacted by the rule on July 1, 2024 and approximately three million additional EAP exempt employees will be impacted by the January 1, 2025 changes. Given the financial impact of the new rule, employers may want to consider reclassifying some of their salaried exempt employees to hourly workers and paying them overtime.

The DOL final rule comes the same day as the Federal Trade Commission (FTC) issued its final rule banning most non-compete agreements. The Labor and Employment lawyers at Coolidge Wall will continue to monitor developments with both of these rules and employers concerned about their impact should discuss the situation with legal counsel.