DOL Rolls Out New Salary Thresholds For Exempt Employees Under the FLSA

By David Harvey and Daniel Feldman

On April 23, 2024, the United States Department of Labor announced a final rule establishing new salary thresholds for exempt employees under the Fair Labor Standards Act (FLSA).

The rule, titled “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees,” increases the standard salary level and the highly compensated employee total annual compensation threshold under the FLSA on July 1, 2024 and January 1, 2025, with future increases starting in July 1, 2027 based on inflation, as adjusted every three years. The thresholds under the final rule are as follows:

With these changes, employers have some initial issues to address and decisions to make:  

• Whether to increase some or all salaries of the impacted employees to meet these new thresholds.
• If the employee salaries are not increased, how should the employer classify the employees who become non-exempt and thus overtime eligible. Should employees be converted to hourly pay? If so, what hourly rate will apply?  Also, the employer may want address whether to use one of the alternative pay methods available for calculating overtime (including salaried OT eligible (FWW)).
• If the salaries are not increased, whether to pay bonuses to the formerly exempt employees.  An employer that pays bonuses may need to include the bonuses in any calculations as to the overtime rate or restructure the bonuses to avoid having to recalculating the overtime rate.
• Whether changing an employee from salaried to hourly impacts any of the employer’s other benefit programs and, if so, whether additional adjustments need to be considered.
• The highly compensated employee threshold is set to increase 24% over the current threshold. The compensation band of employees that become overtime eligible due to the threshold increases, assuming they are not otherwise exempt under the white collar exemption, are likely to receive incentive compensation (e.g., periodic bonuses) that must be included in any overtime calculations. However, employers may move away from or restructure periodic bonuses to ease the administrative burden of calculating overtime for these soon-to-be overtime-eligible employees.
• Employer financial forecasts may need to reflect increased labor costs occasioned by these increases.
• The final rule does not apply to employees in various U. S. Territories (Guam, Puerto Rico, Virgin Islands, etc).