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Department of Labor Increases Salary Threshold for "White Collar" Exempt Employees

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Written by Joseph G. "Chip" Galagaza
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On April 23, 2024, the U.S. Department of Labor (“DOL”) announced significant changes to the Fair Labor Standards Act (“FLSA”) increasing the salary threshold requirements for overtime exemptions applicable to executive, administrative, professional and highly compensated employees. Effective July 1, 2024, salary-based executive, administrative and professional employees must receive an annual salary of $43,888 ($844/per week) to qualify as exempt from FLSA overtime pay mandates, a whopping increase of about 23% over the current minimum salary of $35,568 ($684/wk.) currently required.  Similarly, effective July 1, 2024, salary-based highly compensated employees must receive an annual salary of $132,964 to qualify as exempt from FLSA overtime pay mandates, almost a 24% increase over the amount currently mandated. 

If that wasn’t enough, the DOL’s announcement also provides that the July 2024 adjusted salary requirements will further increase effective January 1, 2025.  Specifically, salary-based executive, administrative and professional employees must receive an annual salary of $58,656 ($1,128/per week) in 2025 to qualify as exempt from FLSA overtime pay mandates – another salary bump of a little over 33% in just six months.  Similarly, highly compensated employees must begin receiving annual compensation of $151,164 in 2025 to qualify as exempt from FLSA overtime pay requirements – roughly another 14% only six months later. 

And there’s more . . . under the DOL’s revisions, the salary thresholds will automatically adjust every three years going forward.  Accordingly, the salary thresholds will next adjust in July 2027. 

What Does the FLSA Provide: The FLSA requires, unless an exemption applies, that employees be paid overtime at the rate of time and a-half for any hours worked in excess of 40 hours in a week. One of the most prevalent exemptions to the FLSA overtime requirements are what are commonly called the “white collar” exemptions which apply to employees working in executive, administrative and professional positions.  As mentioned above, the current minimum salary threshold for such employees is $35,568.  However, paying the requisite minimum salary isn’t all there is to worry about.  To qualify for any of the “white collar” exemptions, employees must not only be paid at least the minimum salary required, but also: (i) be paid on a salary basis (without considering the quality or quantity of work performed); and (ii) primarily perform exempt job duties.   Failure to meet any of the job duties test, the salary basis test, or the minimum salary threshold entitles an employee to overtime for all hours worked in excess of 40 hours in a work week.   

The FLSA also contains special regulations for “highly compensated employees” and exempts such employees from overtime pay mandates if the employee: (i) earns a minimum salary threshold; (ii) primarily performs office or non-manual work: and (iii) customarily and regularly performs at least one of the statutorily defined exempt job duties.  The current minimum salary threshold to exempt highly compensated employees is $107,432. 

But I’m Ok If My Workers Are 1099’d, Right:  Classifying a worker as a 1099 independent contractor is a risky proposition.  The DOL also put into effect its new test – which is really just the old test it had before the last administration – to determine who is actually an independent contractor this past March.  So, calling someone an independent contractor won’t be an easy “fix”.

How Does the Increased Salary Threshold for “White Collar” Employees Affect Businesses: If a business’ executive, administrative and professional employees currently earn an annual salary exceeding $43,888, DOL’s new rule does not affect those employees’ status.  However, if a business’ salaries for some executive, administrative and professional employees do not exceed $43,888 annually, DOL’s new rule will require businesses to adjust salaries or reclassify employees as non-exempt. As noted above, effective July 1, 2024, highly compensated employees may maintain their exempt classification if they receive an annual salary of $132,964. A business employing a highly compensated employee who does not meet the annual salary threshold should adjust the salary or reclassify the employee as non-exempt.  As an additional note, DOL’s published guidance on the amendments to the FLSA does specifically note that the minimum salary threshold requirements do not apply to certain categories of employees, such as lawyers, doctors, teachers and outside sales employees. 

Key Takeaways: As with any major policy change, it is anticipated that the announced changes to the DOL’s new minimum salary requirements may face legal challenges, even though as recently as last year, a federal district court in Texas held that the DOL could set a minimum salary as part of the test of who is exempt under one of the “white collar” exemptions from overtime.  Notwithstanding the expected legal challenges, businesses would be wise to review how its executive, administrative and professional employees are currently classified as well as its current salary structure to be ahead of the looming July 1st changes. 


This information is made available by Stibbs & Co., P.C. for informational purposes only, does not constitute legal advice, and is not a substitute for legal advice from qualified counsel. The laws of other states and nations may be entirely different from what is described.  Your use of this information does not create an attorney-client relationship between you and Stibbs & Co., P.C.  This material may be considered attorney advertising in some jurisdictions. The facts and results of each case will vary, and no particular result can be guaranteed.

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Stibbs & Co., P.C. attorneys are available to discuss the increased salary threshold and the Fair Labor Standards Act. You may contact Stibbs & Co., P.C. at 281-367-2222 or via email to info@stibbsco.com.

 

Topic: Employment Law

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