What you need to know about new higher salary thresholds for white collar workers

Higher Salary Thresholds for White Collar Employees Expand Eligibility for Overtime and Take Effect July 1, 2024

The Department of Labor recently set forth a new rule that increases the salary threshold for overtime eligibility. This ruling will update the overtime protections of the Fair Labor Standards Act (FLSA) which has been in effect since 1938. The FLSA requires all covered employers to pay employees a minimum wage, as well as overtime pay for any hours worked over 40 hours a week at a rate of one and a half (1.5) the employee’s regular pay rate. However, not all employees are covered under this provision.

From the beginning, “white-collar” employees or executive, administrative, or professional (EAP) employees were, and still remain, exempt from the overtime provision. Historically, to qualify for the executive, administrative or professional exemption, an employee must receive annual compensation of at least $35,568 or $684 per week. Depending on the specific exemption, the employee must meet other criteria as well. For example, an employee qualifying under the professional exemption must have advanced knowledge in a field of science or learning which is customarily acquired by a prolonged course of specialized intellectual education. The “duties test” is an important step in this analysis because it largely determines whether an employee is qualified for an EAP exemption, and if so, which exemption. An employee’s “primary duty” has been defined as the principal, main, major or most important duty that an employee performs, but determinations must be made on a case-by-case basis.

What exactly does the update change?

Beginning July 1, 2024, the annual salary threshold for exempt employees will increase from $35,568 to $43,888. This alone is a significant increase for many employers to make, but on January 1, 2025, another increase to the threshold will be implemented to $58,656. After July1, 2027, the threshold will be increased every three years.  This is a good time to evaluate whether your employees are being paid correctly.  If you do not believe your business will be able to keep up with the increases to the required salaries for exemption, you may want to consider switching them to hourly rates of pay and paying overtime.

Are highly compensated employees impacted?

Highly compensated employees will additionally experience an increase in the minimum annual compensation on July 1, 2024 from $107,432 to $132,964. Commensurate with the threshold increases for exempt employees, on January 1, 2025, the threshold will again increase to $151,164. In addition to the minimum compensation requirement, highly compensated employees must also fulfil at least one of the executive, administrative or professional duties.  There is no change to the treatment of bonuses in fulfilling the minimum compensation requirement. Up to 10% of a highly compensated employee’s salary may be met with bonuses.

Who will be impacted?

It is expected that over four million workers nationwide will be impacted by the changes. Employers are estimated to incur roughly $1.4 billion in direct costs as a result.

See more information from the Department of Labor about these changes at:

https://www.dol.gov/agencies/whd/overtime/rulemaking

Our Employment Law Team is available to consult with you concerning any questions you may have about these changes.