The U.S. Department of Labor (DOL) recently introduced a final rule that significantly impacts salary thresholds for exempt employees. Published on April 23, 2024, this rule marks a crucial shift in the Fair Labor Standards Act (FLSA), specifically targeting executive, administrative, professional, outside sales employees, and certain computer professionals. Often referred to as the EAP or white-collar exemptions, these roles were previously exempt from minimum wage and DOL overtime pay requirements.
New Salary Thresholds
As of July 1, 2024, the minimum salary threshold for the EAP exemption will increase to $844 per week, equivalent to approximately $43,888 annually. This is a considerable jump from the previous threshold of $684 per week, or $35,568 annually. But the changes don’t stop there; on January 1, 2025, the threshold will rise again to $1,128 per week, or about $58,656 annually.
Highly compensated employees (HCEs) will also see a significant increase in their salary thresholds. Starting July 1, 2024, the minimum annual compensation for HCEs will rise to $132,964, with a further increase to $151,164 on January 1, 2025. These thresholds represent an increase of more than $7,000 over the current amount, placing businesses in a challenging position.
Impact on Employers and Employees
These changes could affect an estimated one million currently exempt, salaried employees across the United States. Unless employers take action, these employees may become eligible for overtime pay under the FLSA once they exceed 40 hours in a workweek. The DOL estimates that an additional three million employees could be impacted by January 1, 2025.
While employers might consider raising salaries to maintain exempt status for affected employees, this isn’t always a viable option—especially for small businesses. It’s important to note that salary alone doesn’t determine FLSA exemption status. Employers must also consider how the employee’s salary is paid and their primary job duties.
Navigating the Changes
Understanding the complexities of this new rule is vital for employers. Consulting with HR experts or legal counsel can help ensure compliance and proper employee classification. Additionally, staying informed about future changes to the DOL overtime rule is crucial for long-term business planning.
For businesses looking to streamline payroll and compliance processes, partnering with a payroll service provider like Payroll Consultants can offer valuable support. By handling the complexities of payroll, businesses can focus on growth and strategic decision-making during these regulatory shifts.