On April 23, 2024, the Department of Labor published regulations that increase the minimum salary basis for an employee to be considered exempt from overtime under the Fair Labor Standards Act.
The 1938 law requires that employees receive overtime pay — which is time and a half of the employee’s regular rate of pay for all hours worked over 40 in a workweek.
Some employees are exempt from the FLSA’s overtime requirements if they meet the test for an executive, administrative or professional employee, “EAP exemptions,” among other exemptions not relevant to the new regulations.
Under the law, the terms “executive, administrative and professional” are not what they seem. For example, a receptionist (which most people would characterize as an “administrative” employee) is not exempt from overtime because of how the term “administrative” employee is defined in the duties test. An accounting clerk who follows processes and doesn’t engage in decision-making (which most people would characterize as a working “professional”) is not exempt from overtime because of how the term “professional” is defined in the duties test.
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The law is complicated, outdated and often misunderstood, resulting in many employers violating the law.
To be exempt, an employee must:
- Be paid on a salary basis;
- The salary must not be less than the minimum salary threshold amount set by the Department of Labor, and;
- Primary perform executive, administrative or professional duties as those terms are defined in the archaic law.
Many employers wrongly believe that if an employee is paid a salary then the employee is exempt from overtime. This is inaccurate and causes many employers to violate the law created significant financial liability.
The employee must meet both tests — the salary basis and the duties test.
Under the current rule, an employee must earn a minimum weekly salary of $684/week (or $35,568 annually) to satisfy the salary basis test.
Pursuant to the new regulations, effective July 1, 2024, no employee can be exempt under the EAP exemptions if that employee earns less than $844/week or $43,888. Effective January 1, 2025, the minimum threshold increases to $1,128/week or $58,656 annually.
Certain employees, referred to as “highly compensated” in the regulations, can meet the exempt test with a minimum duties test required if the employee meets a higher salary basis threshold. According to current regulations, an employee who is compensated at $107,432 can be exempt with minimum evaluation of the duties tests.
Under the new regulations, the highly compensated salary threshold increases to $132,964 per year effective July 1, 2024, and will increase to $151,164 per year on January 1, 2025.
Beginning July 1, 2027, the earnings thresholds will be updated every three years.
The Department of Labor said in its announcement, “The final rule will restore and extend the right to overtime pay to many salaried workers, including workers who historically were entitled to overtime pay under the FLSA because of their lower pay or the type of work they performed.”
While there will likely be litigation over the new rule, barring an injunction, employers will need to adjust and convert employees who are under the threshold to non-exempt (which means they will be eligible for overtime compensation).
Employers should also take this opportunity to review their exempt status employees to make sure they meet not just the salary minimum threshold but also the duties test.
More information can be found at www.dol.gov.
Karen Michael is an attorney
and the president of Richmond-based Karen Michael PLC.
Email her at stayhired@stayhired.net.