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US DOL Announces the Effective Date of the Long-Await Increases to the Salary Level for Exempt Employees

As anticipated, the U.S. Department of Labor has announced a final rule that updates the exemptions for certain job positions under the Fair Labor Standards Act. Effective July 1, 2024, the standard salary level will be $844 per week ($43,888 per year) for those who are exempt under the “EAP” (Executive, Administrative, and Professional) categories, and the total annual compensation for highly compensated employees (HCEs) will be $132,964. The hourly rate ($27.63) for those classified as Computer Employees will not change; however, Computer Employees who are paid on a salary basis would be subject to the increase for the EAP exemptions.

Consistent with the current regulations, employers can satisfy up to 10 percent of the new salary level ($112.80 per week) through the payment of nondiscretionary bonuses and incentive payments, including commissions paid annually or more frequently. However, employees qualifying for exemption under the HCE test must receive at least the standard salary level per week on a salary or fee basis, while the remainder of the employee’s total annual compensation may include commissions, nondiscretionary bonuses, and other nondiscretionary compensation.

Of note, on January 1, 2025, the EAP salary level will further increase to $1,128 per week ($58,656 per year) and to $151,164 for HCEs. The final rule also establishes a mechanism to update earnings thresholds every three years.

For more information, please visit Final Rule: Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees.

Next Steps for Employers

Review your workforce to determine which employees classified as exempt under the EAP or HCE categories earn between the old threshold and the new threshold and develop a plan for compliance that will include either increasing the salaries of affected employees to meet the new salary level and remain exempt or reclassifying employees as non-exempt, making them eligible for overtime pay for hours worked over 40 per week.

Of significance, the next salary level increase is set to take place on January 1, 2025, which is only six months after the effective date of the July 1 increase. As a result, you may need to prepare to make yet another adjustment in a brief period to maintain the exemption. To avoid this, it may be worth considering basing increases on the salary level ($1,128 per week) that will go into effect on January 1.

In addition, you must be mindful that the salary level is just one part of the exemption test and should ensure that exempt employees also meet the “duties test,” meaning their job duties must primarily involve executive, administrative, or professional functions. You must also ensure that you comply with the salary basis requirements, meaning, exempt employees regularly receive a predetermined amount of compensation each pay period on a weekly, or less frequent, basis and this amount is not reduced because of variations in the quality or quantity of the employee’s work. Additional information on exemptions and these requirements is available on the DOL’s website

Multistate employers should also be mindful of state laws which may require higher salary levels than those proposed under this federal rule. Currently, Alaska, California, Colorado, Maine, New York, and Washington have higher salary level requirements for certain exemptions. Specific to Maine, the federal salary level will be greater than the state requirement come July 1. Where the state law requires a higher salary level, employees must be paid per the state law. Furthermore, you should be aware that the practice of satisfying  salary level requirements using up to 10 percent of other types of compensation may not be applicable under state laws.

Employers should consider consulting with legal counsel to ensure compliance with the final rule and navigating potential employee misclassification issues.

This final rule may likely be challenged which could impact the salary levels and/or the effective dates. HR Works will continue to monitor this topic and provide additional information as it becomes available.

How HR Works Can Help

Current HR Works’ Virtual HR Helpline subscribers have unlimited access to answers to questions about the proposed FLSA exempt salary increase, as well as other HR/employment law topics, and 24/7 access to HR Works’ attorney-reviewed online compliance resource center (Comply), which offers human resources tools, forms, and resources. Additionally, Virtual HR Helpline subscribers receive two free FLSA Assessments each year (with the option to purchase the additional assessments for a fee). The HR Helpline can be reached at hrhelp@hrworks-inc.com or by calling 888-668-1271.

HR Strategic Services clients may contact their designated HR Strategic Partner for additional guidance and assistance with FLSA Assessments.

Non-HR Works clients may contact us for HR solutions by calling toll-free at 1-877-219-9062 or visiting our website.

HR Works, headquartered in Upstate New York, is a human resource management outsourcing and consulting firm serving clients throughout the United States for over thirty years. HR Works provides scalable strategic human resource management and consulting services, including: affirmative action programs; benefits administration outsourcing; HRIS self-service technology; full-time, part-time and interim on-site HR managers; HR audits; legally reviewed employee handbooks and supervisor manuals; talent management and recruiting services; and training of managers and HR professionals.