DOL issues final rule on exempt salary level threshold

On April 23, 2024, the U.S. Department of Labor (DOL) announced its long-awaited final rule on changes to the Fair Labor Standards Act's (FLSA) annual salary level threshold for exempt status.  Under the DOL’s final rule, the annual salary level to qualify for exempt status will increase in two steps resulting in an increase from the current $35,568 per year to $58,656 per year by January 1, 2025. 

The salary threshold requirement

To be considered exempt from overtime under the FLSA’s “white collar” exemptions, an employee must work in a position that meets the job duty requirements of an executive, administrative and professional position and the employee must be paid on a salary basis of at least the DOL’s established threshold amount.  In August 2023, the DOL proposed rules that would change the salary level threshold from the current $35,568 to $55,068 per year. The DOL’s proposed rule also included an automatic increase of the salary level threshold every three years.

The final rule

After receiving thousands of comments, the DOL’s final rule increases the salary level threshold in two steps:

• The salary threshold will increase to $43,888 per year effective July 1, 2024.
• The salary level will then increase to $58,656 on January 1, 2025.
• Beginning on July 1, 2027, the DOL will automatically increase the overtime threshold every three years.

What’s next for employers

Employers can prepare for the proposed salary level increases by evaluating how the change may impact their workforces and their budgets. Employers should initially review whether they have exempt employees who fall in the salary band from $35,568 to $43,888 whose exempt status would be impacted by the new rule.  Employers should consider hours worked patterns and the potential impact of paying overtime compensation versus the impact of salary level increases for employees in that group.   

As many employers will recall from past salary level increases, implementing these changes takes time and thoughtful planning. Employers should begin the process now so that they are ready for July 1 and can then move on to planning for the next hefty salary level increase on January 1, 2025.

While employers must take steps to prepare for these changes, given the history of successful litigation over the salary level threshold, employers can also anticipate litigation over this new rule.  

The McDonald Hopkins' Labor and Employment Law Team will continue to provide insights on the new salary level threshold and steps employers can take to prepare for implementation.