Update: Department of Labor Overtime Rules
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Update:
On November 15, 2024, the U.S. District Court for the Eastern District of Texas vacated and set aside the overtime rule changes discussed below. As result of the ruling, the changes to the executive, administrative, and professional and highly compensated employee exemption discussed below are not effective. Employers who wish to address changes made in response to the now vacated July 1, 2024, requirements are encouraged to consult with counsel.
As the legal situation changes, M3 will continue to monitor the situation and provide updates as necessary.
On April 23, 2024, the Department of Labor (DOL) released a final rule updating the requirements for an employee to be exempt from the minimum wage and overtime pay requirements of the Fair Labor Standards Act (FLSA). The new rule increases the required salary for an employee to be exempt from the FLSA under the executive, administrative, and professional (EAP) employee exemption or the highly compensated employee (HCE) exemption.
Executive, Administrative, and Professional Exemption and Highly Compensated Employee Exemption to the Fair Labor Standards Act
Generally, the FLSA requires employers to pay their employees at least the Federal minimum wage and to pay 1.5 times an employee’s regular rate of pay for time worked beyond 40 hours. However, employees who are employed in a bona fide executive, administrative, or professional capacity are exempt from the overtime and minimum wage requirements of the FLSA.
To satisfy the EAP exemption, employees must:
- Be paid a salary that is predetermined and is not subject to reduction due to quality or quantity of work;
- Be paid at least a specified weekly salary level; and
- Primarily perform executive, administrative, or professional duties.
Certain employees may also be exempt from the FLSA overtime and minimum wage requirements if they satisfy the highly compensated employee exemption. An employee can satisfy the HCE exemption if:
- The employee earns a salary at or exceeding the compensation limit, including at least a certain amount of salary per week;
- The employee’s primary duty includes performing office or non-manual work; and
- The employee customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative, or professional employee.
Updated Salary Levels
The new rule increases the minimum salary needed for an employee to qualify for the EAP exemption and for the HCE exemption. Currently, an employee must earn at least $684 per week ($35,568 annually) to qualify for the EAP exemption and $107,432 annually, including at least $684 per week, to qualify for the HCE exemption. The minimum salary levels to qualify for the EAP exemption and HCE exemption in the future are below:
EAP Exemption
- July 1, 2024: $844 per week ($43,888 annually)
- January 1, 2025: $1,128 per week ($58,656 annually)
- July 1, 2027: further adjustments based on the data available at that time.
HCE Exemption
- July 1, 2024: $132,964 annually, at least $844 per week
- January 1, 2025: $151,164 annually, at least $1,128 per week
- July 1, 2027: further adjustments based on the data available at that time.
If state law requires higher minimum salaries than what is required by the federal rule, the state minimums must be followed.
Starting on July 1, 2027, the minimum salary levels will be updated every three years using the data available at the time. Although the future minimums are unknown at this time, employers will have at least 150 days’ notice before those changes take effect.
The last time the DOL attempted a significant change to the salary minimums, the rule was challenged and ultimately blocked just weeks before taking effect. While there is no way of predicting if that will happen again, it is very likely that this final rule will be litigated.
Key Takeaways:
Employers would be well served to review the changes to the required salary levels to satisfy the executive, administrative, and professional exemption, and the highly compensated employee exemption to the Fair Labor Standards Act. Employers may determine that certain employees either need to be classified as non-exempt due to not meeting the increased salary requirements or need to have their salaries increased to keep the employee qualified as exempt.
The information provided is a summary of laws and regulations relating to employee benefit plan compliance. This information should not be construed as legal advice. In all cases, employers should consult with their own legal counsel.
