On April 23, 2024, the United States Department of Labor (“DOL”) issued its Final Rule regarding exempt workers under the Fair Labor Standards Act (“FLSA”). The Final Rule significantly raises the minimum salary thresholds for employees to be considered exempt from federal minimum wage and overtime laws. The DOL estimates the Final Rule will affect up to 4 million employees.

The FLSA is a federal law, which mandates most employees be paid federal minimum wage and overtime pay for all hours worked over 40 hours in a workweek. Employees subject to federal minimum wage and overtime pay are generally referred to as “non-exempt employees.” There are “exemptions” to the federal minimum wage and overtime rule. The exemptions include the executive, administrative, professional, and highly compensated employee exemptions.

To qualify as an exempt employee under the executive, administrative, and professional employee exemptions, the employee must: (1) perform certain duties; (2) be paid on a pre-determined fixed salary, not subject to reductions due to work quality or quantity; and (3) earn a salary which is above the minimum salary threshold set by the DOL. The DOL’s recent Final Rule raises the minimum salary thresholds, while the duties tests remain completely untouched. Thus, if employers desire to treat appropriate employees as “exempt” from federal minimum wage and overtime requirements, employers must ensure the employees are paid at least the required minimum salary under the Final Rule. The Final Rule contains two set stages of salary increases and automatic increases in the future.

The First Stage Increase

The first stage increase goes into effect on July 1, 2024. Thus, on July 1, 2024, for an employee to meet the minimum salary threshold to be considered an exempt executive, administrative, and/or professional employee the individual must earn $844 per week ($43,888 annually). This is an increase from the previous standard, which was $684 per week ($35,568 annually).

For the highly compensated employee exemption, the first stage increase requires individuals be paid at least $132,964 per year on July 1, 2024, an increase from the old standard of $107,432.

The Second Stage Increase

The second stage increase goes into effect on January 1, 2025, and increases the minimum salary threshold for the executive, administrative, and professional employees to $1,128 per week ($58,656 annually) and increases the minimum salary threshold for a highly compensated employee to $151,164 per year.

Automatic Increases Every Three Years after July 1, 2027

Beginning on July 1, 2027, and every three years thereafter, the Final Rule automatically increases the minimum salary thresholds to reflect the then current earning data.

Legal Challenge

A lawsuit was filed in the Eastern District of Texas, Plano Chamber of Commerce et al v. U.S. Department of Labor et al, Docket No. 4:24-CV-00468 (E.D. Tex. May 22, 2024), which in part, challenges the Final Rule as arbitrary, capricious, and otherwise contrary to the law. The plaintiffs also ask the Court to enjoin the DOL from implementing, applying, or taking action on the Final Rule “anywhere” in the DOL’s jurisdiction. Davenport Evans Lawyers will monitor this case to determine whether any ruling impacts our clients.

Employer Preparation

At this time, employers should determine which employees are impacted by the Final Rule. An employer must determine whether it will re-classify employees to “non-exempt” status and pay for appropriate overtime or whether it will adjust salaries to meet the new minimum salary thresholds. Morale issues within the workplace should also be considered, as some employees may view going from exempt to non-exempt as a demotion. Employers must also be aware that if it has an employee working in a remote location, state law may require an even higher salary threshold to be considered exempt from state minimum wage and state overtime laws.

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Davenport, Evans, Hurwitz & Smith, LLP, located in Sioux Falls, South Dakota, is one of the state’s largest law firms. The firm’s attorneys provide business and litigation counsel to individuals and corporate clients in a variety of practice areas. For more information about Davenport Evans, visit www.dehs.com