On April 23, 2024, the U.S. Department of Labor (DOL) announced a final rule that increases the salary thresholds for the executive, administrative, professional, and highly compensated employee exemptions from overtime-pay requirements under the Fair Labor Standards Act (FLSA). Employers that classify employees under these exemptions should review their pay practices, to ensure that their classifications will remain valid after the salary-threshold increases take effect.
What are the executive, administrative, professional, and highly compensated employee exemptions under the FLSA?
As a general rule, the FLSA requires employees to be paid an overtime premium (1.5 times the regular rate of pay) for hours worked over 40 in a workweek. However, an employee is not entitled to overtime pay if the employee’s position satisfies an exemption. In office settings, employees are commonly classified as exempt under the executive, administrative, professional, and highly compensated employee exemptions. Each of these exemptions has a specific “duties” test. In addition, the executive, administrative, and professional exemptions require that the employee be paid on a salary basis in an amount exceeding a threshold. The highly compensated employee exemption requires that employees be paid in excess of an annualized compensation threshold, at least a portion of which must be paid on a salary or fee basis.
What are the current salary or compensation thresholds for the executive, administrative, professional, and highly compensated employee exemptions?
As of the date of this article, the salary threshold for the executive exemption, the administrative exemption, and the professional exemption is $684 per week, which amounts to $35,568 annualized. Under the highly compensated employee exemption, the employee must be paid $107,432 per year, which must comprise at least $684 per week (or $35,568 annualized) on a salary or fee basis.
What are the salary or compensation thresholds increasing to?
Under the DOL’s new rule, the salary thresholds are increasing according to the following schedule:
| Date | Salary Threshold for Executive, Administrative, and Professional Exemptions | Salary Threshold for Highly Compensated Employee Exemption |
| July 1, 2024 | $844 per week (equivalent of $43,888 per year) |
$132,964 per year, including at least $844 per week paid on a salary or fee basis |
| January 1, 2025 | $1,128 per week (equivalent of $58,656 per year |
$151,164 per year, including at least $1,128 per week paid on a salary or fee basis |
| July 1, 2027 and every 3 years thereafter |
To be determined by applying to available data the methodology used to set the salary level in effect at the time of the update. | To be determined by applying to available data the methodology used to set the salary level in effect at the time of the update. |
When does this change become effective?
The DOL’s new rule goes into effect on July 1, 2024. However, as noted above, certain increases go into effect on later dates – January 1, 2025, July 1, 2027, and every 3 years thereafter.
Will the salary and compensation thresholds continue to increase over time?
Yes. Under the DOL’s new rule, the salary and compensation thresholds will continue to increase every three years, to reflect current earnings data using the most recent available four quarters of data published by the Bureau of Labor Statistics.
What should employers do to comply with the new thresholds?
If an employer currently pays an employee classified under the executive, administrative, professional, or highly compensated employee exemption below the new thresholds, the DOL offers the following options:
- increase the employee’s salary to meet the new salary or compensation threshold;
- continue to pay the employee a salary (assuming it’s above minimum wage), and:
- pay the employee overtime pay for any hours worked over 40 in a workweek; or
- ensure that the employee does not work over 40 hours in a workweek;
- reduce the employee’s base salary (but not below minimum wage) to offset overtime pay for overtime hours worked in a workweek.
In addition to assessing the financial impact of these options, employers should also review any applicable employment agreements to ensure that their actions do not result in a breach, or inadvertently trigger severance rights. Employers would be well advised to consult with their employment attorneys to develop a plan to comply with the new salary and compensation thresholds.
