On April 23, 2024, the U.S. Department of Labor (the “DOL”) announced a final rule that would increase the salary threshold required for employees to qualify for three of the “white collar” exemptions (i.e., the administrative, professional, or executive exemptions; computer professionals and outside sales employees are not affected by this rule). Absent any legal challenges that delay the implementation of this rule, it is set to go into effect on July 1, 2024.

As a reminder, the Fair Labor Standards Act currently requires that, for an employee to be exempt from minimum wage and overtime requirements, they must be paid on a salary basis, earn a minimum weekly salary of $684 per week ($35,568 per year), and satisfy the applicable “duties” test outlined in the federal regulations. Additionally, there is an exception for “highly compensated employees;” these employees are exempt from minimum wage and overtime rules if they earn at least $107,432 per year and perform at least one of the duties listed in the aforementioned duties tests.

The new rule changes the current rule in the following ways:

1. Increase the minimum weekly standard salary threshold from $684 per week ($35,568 per year) to $844 per week ($43,888 per year);
2. Increase the highly compensated employee salary threshold from $107,432 per year to $132,964 per year (which must include at least $844 per week paid on a salary or fee basis);
3. Beginning January 1, 2025, the minimum weekly standard salary threshold will be increased to $1,128 per week ($58,656 per year), and the highly compensated employee salary threshold will be increased to $151,164 per year (which must include at least $1,128 per week paid on a salary or fee basis); and
4. Beginning July 1, 2027, and every three years thereafter, the minimum weekly standard salary threshold and the highly compensated employee salary threshold will be increased as the DOL sees fit when consulting available data.

Of note, the DOL did not change the current regulations with respect to how bonuses or commissions can be included in satisfying the salary thresholds. The new rule will continue to allow employers to satisfy up to 10% of the new salary threshold (i.e., up to $112.80 per week under this new rule) through the payment of nondiscretionary bonuses and incentive payments (including commissions) paid annually or more frequently. 

Given that rule goes into effect in less than two months from now (again, absent any legal challenges that delay implementation), employers are encouraged to begin evaluating their workforces, and, specifically, the employees this rule will affect. Not only should salaries be evaluated, but employers should re-assess whether the “duties” tests under the administrative, professional, or executive exemptions are met by each of their exempt positions. While this change may seem daunting, rest assured that employers have many options as to how to adapt their pay practices to comply with this new rule. Options include, but are not limited to, raising affected employee’s salaries to meet the new threshold, converting affected employees from salaried exempt to hourly, non-exempt employees, or keeping affected employees’ salaries as is and begin paying them overtime on top of their weekly salary. 

Koley Jessen is continually monitoring the status of this new rule. We encourage you to contact a member of our Employment, Labor, and Benefits practice group with any questions regarding the foregoing or if you would like assistance in strategizing how your company can comply.

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