The Final Rule: The Department of Labor Increases the Salary Threshold for Exempt Employees

By Michele L. Jakubs*

On April 23, 2024, the U.S. Department of Labor announced its final rule amending the regulations interpreting the Fair Labor Standards Act (FLSA)at 29 CFR part 541, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees, which will take effect on July 1, 2024. The rule increases the salary threshold required for the most commonly used exemptions under the FLSA. Employees are exempt from overtime if they are paid on a salary basis and meet the duties requirements for one of these exemptions: executive, administrative, or professional. The new rule increases the salary level for these exemptions from $684 per week ($35,568 per year) to $844 per week ($43,888 per year). The FLSA also provides an exemption for highly compensated employees who meet a less onerous duties test. The new rule increases the required annual compensation for highly compensated employees from $107,432 to $132,964. The new rule provides for incremental increases as follows:

On July 1, 2024

1. The salary threshold for the executive, administrative, and professional exemptions increases to $844 per week ($43,888 per year);
2. The highly compensated employees’ total annual compensation level increases to $132,964, including at least $844 per week paid on a salary or fee basis.

On January 1, 2025

1. The salary threshold for the executive, administrative, and professional exemptions increases to $1,128 per week ($58,656 per year);
2. The highly compensated employees’ total annual compensation level increases to $151,164, including at least $1,128 per week paid on a salary or fee basis.

The rule also adopts a mechanism to update the salary threshold starting July 1, 2027, and every three years thereafter.

It remains to be seen whether there will be legal challenges to the new rule and whether such challenges may delay or prevent the new rule from taking effect. In the meantime, employers should evaluate the salary levels of their exempt employees to determine whether these increases impact their eligibility for exempt status. For those employees falling below the new thresholds, employers need to consider the financial impact of increasing their salaries versus converting them to nonexempt status and paying them overtime.

*If you have questions relating to the DOL’s new rule, or any other labor and employment law issues, please contact Zashin & Rich’s Wage and Hour Practice Leader, Michele Jakubs (mlj@zrlaw.com) at (216) 696-4441 or Matthew Smallwood (mcs@zrlaw.com) at (614) 224-4411.