The Expansion of the FLSA’s Overtime Pay Requirements

On April 23, 2024, the Department of Labor (“DOL”) published a final rule in which it increased the minimum compensation thresholds for establishing that an employee is exempt from the Fair Labor Standards Act’s overtime pay requirements under the executive, administrative, and professional exemption (the “Administrative Exemption”) and/or the highly compensated employee exemption (the “Highly Compensated Exemption”). This new rule is slated to go into effect in less than two months, on July 1, 2024.

Employers and employees must be aware of the changes brought on by the DOL’s new rule because these exemptions have traditionally covered many office workers.

What is an Exempt Employee?

The Fair Labor Standards Act or “FLSA” imposes pay and record-keeping obligations on employers. For example, the FLSA generally requires employers to pay employees one and a half times their regular rate of pay for all hours worked over forty (40) in a workweek unless an exemption applies to the employee. Accordingly, an “exempt employee” generally refers to an individual who is not subject to the FLSA’s overtime pay requirements because one or more of the FLSA’s enumerated exemption applies to the type of work performed by the individual. The DOL is charged with interpreting the FLSA’s exemptions and issuing regulations and guidance that more specifically defines which employees will be exempt from the FLSA’s overtime pay requirements. 

The New Rule Amends the Compensation Thresholds that Must be Met to Establish the FLSA’s Overtime Pay Exemption Covering White Collar Workers

Many white collar office workers are not entitled to receive overtime pay because they fall under the Administrative Exemption and/or Highly Compensated Exemption. 

Three prerequisites that must be met for one or more of these exemptions to  apply to an employee. First, the employee must be paid a fixed salary that is not subject to reduction based on the quality or quantity of the employee’s work. Second, the amount of the fixed salary must meet or exceed a pay threshold set by the DOL. Third, the employee’s primary job duties must be considered executive, administrative, or professional in nature.

The key difference between these two exemptions is that a higher compensation threshold must be met for the Highly Compensated Exemption to apply to a particular employee. If this higher compensation threshold is met, then less scrutiny is given to the nature of the employee’s duties to determine that the exemption applies to the employee.

The DOL Implemented a Substantial Increase to the Compensation Threshold for Establishing Both Exemptions

Prior to the DOL’s recent rule change, the compensation threshold for establishing the Administrative Exemption was (and is through June 30, 2024) $35,568/year ($684/week). However, starting July 1, 2024, an employee must earn an annual salary of at least $43,888 ($844/week) to be exempt from the FLSA’s overtime pay requirements under the Administrative Exemption. These minimum amounts will increase again in 2025, 2027, and every three years thereafter.

The same timeline applies to the DOL’s recent increases to the compensation thresholds for the Highly Compensated Exemption. Through June 30, 2024, this exemption will apply to employees whose total compensation is at least $107,432/year. Starting July 1, 2024, an employee’s total annual compensation must be at least $132,964 for the employee to be exempt from the FLSA’s overtime pay requirements under the Highly Compensated Exemption. As with the Administrative Exemption, these minimum amounts will increase again in 2025, 2027, and every three years thereafter.

The DOL anticipates that the changes to the compensation thresholds will require employers to pay overtime premiums to more than a million additional workers who would have been previously exempt. Therefore, it will be important for employers to make sure the new compensation thresholds are met when relying on these exemptions in the future.

Will the DOL’s New Rule be Challenged in Court?

While the DOL is tasked with interpreting the FLSA’s exemptions, the DOL’s interpretations of those exemptions must be consistent with the actual language and requirements set forth in the FLSA. Since the FLSA does not specifically authorize the establishment of compensation thresholds for these exemptions to apply to any particular employees, it is likely that employers will challenge the validity and implementation of the DOL’s new rule. Accordingly, employers and employees should watch for future court decisions that may invalidate the new rule or delay its implementation.

Contact an Attorney with Experience in Evaluating Employment Law Issues

The attorneys at Block & Associates have decades of experience in all facets of employment law and are ready to assist employers and executives in evaluating their employment rights and obligations.

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