2024 Wage and Hour Update: Department of Labor Issues “Final” Employee Exemption Rule

On April 23, 2024, the Department of Labor (“DOL”) announced its “final” rule updating the key employee exemptions from the minimum wage and overtime pay requirements of the Fair Labor Standards Act (“FLSA”).

Since at least 1940, the DOL’s regulations have laid out a three-part test for determining whether an individual is employed in a bona fide executive, administrative and professional capacity.  To be exempt under the FLSA, an individual must be (1) paid on a pre-determined and fixed “salary basis”; (2) the amount of salary must meet or exceed a specified level; and (3) the individual’s primary job duties must be executive, administrative or professional in nature.  The DOL’s final rule changes the minimum salary levels required to qualify for exempt status.

The DOL’s final rule raises the minimum salary levels for the executive, administrative and professional exemptions from the current $684 per week ($35,568 per year) to $844 per week ($43,888 per year).  That change becomes effective on July 1, 2024.   Effective on January 1, 2025, however, the minimums increase again to $1,128 per week ($58,656 per year).   The final rule also increases the minimum total annual compensation level for the “highly compensated employee” (“HCE”) exemption from the current level of $107,432 to $132,964 per year.  That increase becomes effective on July 1, 2024.  Effective on January 1, 2025, however, the HCE minimum then increases again to $151,164 per year.   Up to 10% of the HCE minimum may be satisfied by non-discretionary bonuses, incentives and commissions that are paid annually or more frequently.  In contrast, a typical discretionary bonus, such as a year end holiday bonus or other non-binding cash reward, will likely not satisfy the threshold requirement.

The DOL assessed that, over the years, the minimum salary levels for exempt status have traditionally lagged behind ever-evolving market conditions.  Consequently, the final DOL rule also establishes an automatic adjustment mechanism.  The DOL’s final rule mandates an update to the exemption salary thresholds every three years to more closely reflect “current earnings data.”