On April 23, 2024, the U.S. Department of Labor announced a final rule, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees, which will take effect on July 1, 2024. The final rule increases the standard salary level and the total annual compensation requirement for highly compensated employees (HCE).
Salary Updates
The current minimum salary level is $684 a week, which is $35,568 a year. Beginning July, the standard salary level will equal $844 per week or $43,888 per year. The salary level will increase again on January 1, 2025, to $1,128 per week or $58,656 per year. The 2025 update, which the DOL said will impact 3 million workers, is pegged to the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage U.S. Census region, which is the southern U.S. The salary level will then increase on July 1, 2027, and every three years thereafter.
Exemptions
Employees are exempt from the Fair Labor Standards Act’s minimum wage and overtime protections if they are employed in a bona fide executive, administrative, or professional capacity, as those terms are defined in the Department’s regulations at 29 CFR part 541. To fall within the EAP exemption, an employee generally must meet three tests:
- Be paid a salary, meaning that they are paid a predetermined and fixed amount that is not subject to reduction because of variations in the quality or quantity of work performed;
- Be paid at least a specified weekly salary level; and
- Primarily perform executive, administrative, or professional duties, as provided in the Department’s regulations.
Final Rule
The final rule does not change the duties tests.
The final rule also increases the total annual compensation requirement for Highly Compensated Employees (HCE). The DOL’s rule will increase the minimum salary threshold for these individuals to $132,964 on July 1, 2024, and to $151,164 on January 1, 2025, tied to the 85th percentile of salaried workers nationally. The current annual compensation threshold for Highly Compensated Employees is $107,432 per year.
While the U.S. Department of Labor’s announcement of the final rule signals significant changes to the regulations concerning exemptions for certain employees under the Fair Labor Standards Act, it’s essential to note that the final rule may face legal scrutiny and potential challenges. However, despite the possibility of legal hurdles, employers should proactively prepare for the implementation of the updated rule come July 1, 2024.
For more information about the final rule, review the FAQs.
Article by Mary Corrado, courtesy of SBAM Approved Partner ASE.