Department of Labor Increases Salary Requirements for White-Collar & HCE Exemptions
Implementation Deadlines: First phase on July 1, 2024 | Second phase on January 1, 2025
The U.S. Department of Labor [DOL] announced the Final Rule: Restoring and Extending Overtime Protections. The final rule amends the Fair Labor Standards Act regulations by increasing the salary threshold required for executive, administrative, and professional exemptions [referred to as white-collar exemptions). The final rule does not make any changes to these exemptions’ duties tests. This ruling may prompt significant changes to staff compensation plans, so employers will need to act quickly to ensure their pay practices align with these new requirements.
In recent years, the DOL’s new rules changing the exempt salary threshold have become known as “federal overtime rules.” Under the federal Fair Labor Standards Act [FLSA], employees generally must be paid an overtime premium of 1.5 times their regular rate of pay for all hours worked beyond 40 in a workweek — unless they fall under an exemption. To accomplish this, the DOL has revised regulations to raise the minimum salary that an employee must receive to be eligible for a white-collar exemption.
Salary Changes for Exempt White-Collar Workers
- July 1, 2024: Salary threshold increases from $684 per week [$35,568 per year) to $844 per week [$43,888 per year).
- January 1, 2025: Salary threshold increases to $1,128 per week [$58,656 per year).
Salary Changes for Highly Compensated Employees [HCE]
- July 1, 2024: Total annual compensation increases from $107,432 to $132,964.
- January 1, 2025: Total annual compensation increases to $151,164.
Mandated changes for Exempt White-Collar & HCE Employees
- July 1, 2027: On this date and every three years thereafter, the salary threshold for the white-collar exemptions and the total annual compensation for the HCE exemption will increase again, at an amount “to be determined by applying to available data the methodology used to set the salary level in effect at the time of the update.”
- NOTE: Oregon law does not recognize an HCE exemption from overtime. Thus, Oregon employers test to make employees exempt must satisfy the duties for an applicable exemption.
Next Steps: Employers Need to Review Pay Practices for Compliance
Employers should begin reviewing the salaries of exempt employees classified under the executive, administrative, and professional exemptions and any highly compensated employee exemptions by the dates listed above to ensure employees are properly classified according to the new salary requirements.
Now is the time to review your exempt jobs for compliance with all criteria – not just the salary threshold. Don’t forget that the white-collar exemptions have more requirements than just the salary threshold. To qualify for these exemptions, employees must meet three criteria:
- Be paid on a salary basis.
- Be paid at least the designated minimum weekly salary.
- Perform specific duties.
If the employees at issue fall below the salary threshold effective July 1, 2024, or January 1, 2025, employers will need to either increase the salaries to meet the corresponding threshold or reclassify the workers as non-exempt.
Expect Legal Challenges
Previous efforts to increase the salary basis were put on hold by court decisions. With legal challenges, parts of the order may be upheld, modified, or put on hold indefinitely. Cardinal will endeavor to keep you updated.
Clients of Cardinal Services
If you have any questions about the DOL’s salary requirements or for any other wage and hour inquiries, please reach out to the HR Team at hr@cardinal-services.com for assistance.