On April 23, 2024, the U.S. Department of Labor issued its Final Rule sharply increasing the minimum salary requirements for the Fair Labor Standards Act’s white-collar overtime exemptions. These changes, if they ultimately take effect, will affect the overtime exemption eligibility for millions of currently exempt employees nationwide.
Background and History
The FLSA’s white-collar exemptions apply to “bona fide” executive, administrative, and professional employees and generally include both a minimum salary requirement and a duties test. To establish that an employee is properly classified as exempt from overtime pay requirements under one of these exemptions, the employer must be able to prove that the employee is paid on a salary basis in an amount at least equal to the minimum salary requirement and meets the primary duties test for one of these exemptions.
Over the last eight years, the minimum salary requirement for these exemptions has become a legal battleground.
In 2016, the Obama Administration DOL issued new regulations that would have more than doubled the minimum weekly salary requirement for most white-collar overtime exemptions from $455 ($23,660 annually) to $913 ($47,476 annually). A federal judge issued a nationwide preliminary injunction blocking these changes from taking effect in late 2016, and the Trump Administration DOL ultimately abandoned these regulations.
In September 2019, the Trump Administration DOL issued new regulations that increased the minimum weekly salary requirement from $455 to $684 ($35,308 annually). Those changes took effect in January 2020.
In August 2023, the Biden Administration DOL issued a new Notice of Proposed Rulemaking, proposing its own significant increases to the minimum salary requirements. After a notice and comment period, during which the DOL received approximately 33,000 comments, the DOL issued its Final Rule on April 23, 2024.
The New Requirements
The DOL’s new Final Rule will raise the minimum salary threshold for these exemptions to $844 per week (i.e., $43,888 annually) effective July 1, 2024. This represents a 23% increase over the current requirements. Then, six months later, the minimum salary requirement will rise again, this time to $1,128 per week (i.e., $58,656 annually) effective January 1, 2025. The Final Rule also contains automatic updates (i.e., increases) every three years based on earnings data, with the first automatic update scheduled for July 1, 2027.
The Final Rule also significantly increases the minimum salary requirement for the FLSA’s highly compensated employee exemption. However, the Pennsylvania Minimum Wage Act has no equivalent exemption, so this change is of less relevance to Pennsylvania employers.
As occurred in 2016, we expect that legal challenges will soon be filed in court in response to these new regulations. Whether those efforts will be successful in blocking the regulations from taking effect before their effective date (as what happened in 2016) is unknown.
In the meantime, employers should identify employees currently classified as exempt under one of the white-collar exemptions who are paid a salary amount below the new minimum and consider either increasing those employees’ salaries, identifying another exemption without a minimum salary requirement that may be applicable, or converting these employees to non-exempt status for overtime pay purposes. However, with the expected legal challenges and uncertainty they bring, employers may want to delay any responsive action driven by these new regulations until as close to July 1 as possible.
