Understanding the Department of Labor’s Final Rule: New Salary Thresholds for Overtime Exempt Employees

 

A recent court decision has effectively vacated the Department of Labor’s rule that was set to increase employee salaries to $58,656 annually on Jan. 1, 2025. This requirement is no longer in place. Employers no longer have to comply with that salary threshold for their FLSA overtime-exempt employees. References to that date below were made prior to the court’s decision.

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For this first edition of Take a Second: CU Legal Insights with me, MCUL General Counsel Haleigh Krombeen, we are going to breakdown the Department of Labor’s (DOL) Restoring and Extending Overtime Protections final rule.

This final rule increases salary thresholds for overtime exempt employees under the Fair Labor Standards Act (FLSA). As a reminder, the first portion of this rule is effective starting next Monday (July 1, 2024). This article is intended for general information only and does not constitute legal advice. If you have any questions about how to implement this rule an/or the possible implications, you should contact your attorney for advice.

What is the DOL’s Final Rule?

To put it simply, the DOL’s final rule increases the minimum salaries thresholds for employees to continue to be exempt from federal overtime requirements under the FLSA. These classifications of employees are exempted from overtime because they are paid on a salary-versus-hourly basis and have job duties that meet the requirements to be classified as an executive, administrative or professional employee under the regulation.

Who is Classified as an Exempt Executive, Administrative or Professional Employee Under FLSA?

The FLSA outlines a set of requirements that must be met for an employee to be considered an exempt executive, administrative or professional (EAP exempt) employee under the regulation. The breakdown of the specific requirements for each of these employee classifications can be found here. Generally speaking, EAP-exempt employees must meet the following criteria:

1. They must be paid a salary that is a predetermined, fixed amount that is not subject to reduction due to quantity or quality of the work they perform;
2. They must be paid at least a specified weekly salary level; and
3. They must primarily perform executive, administrative, or professional duties (as outlined in the link above).

Currently Required vs. What the New Rule Requires

Currently to be an EAP-exempt employee, an executive, professional and/or administrative employee must — in addition to satisfying the applicable “duties” test — receive a guaranteed base salary of at least $684 per week which equates to $35,568 per year.

The new rule increases that guaranteed base salary amount as follows:

1. On July 1, 2024, EAP-exempt employees must make $844 per week or $43,888 per year to continue to be exempt from federal overtime under FLSA.
2. On January 1, 2025, EAP-exempt employees must make $1,128 per week or $58,656 per year to continue to be exempt from federal overtime under FLSA.
3. July 1, 2027, and every three years thereafter, these salary thresholds will be evaluated and potentially changed to reflect current earning data.

It is important to note that the “duties” test has not been altered by the new rule.

What Should You (as an Employer) Do?

1. Take steps to make sure that all your employees that are treated as exempt have the requisite salary in time to meet the July 1, 2024, deadline and then again prior to the Jan. 1, 2025, deadline.
2. Take steps to make sure that all employees that are treated as exempt have the proper duties to qualify for that exemption.
3. And if necessary adjust employees’ salaries or exempt status. This piece can be very complex, so I recommend consulting with an experienced employment law attorney on this if you are moving an employee(s) from exempt to non-exempt.

Resources:

The DOL has put out several helpful resources that can be used to help navigate this new rule. Links to some of these resources are included below.

• DOL Final Rule: Restoring and Extending Overtime Protections Webinar
• DOL Final Rule: Restoring and Extending Overtime Protections FAQ
• DOL Final Rule: Restoring and Extending Overtime Protections General Information

To sum it up, this rule is going to require your credit union to look at your employees’ salaries and classifications to determine if changes need to be made to ensure compliance with this rule prior to the effective date of July 1, 2024. It also should serve as a conversation starter for what additional changes will need to be made ahead of Jan. 1, 2025, when the additional increase takes place. If you have any questions about how to implement this rule and/or the possible implications, you should contact an attorney for advice.

Hope to see you next time when we “take a second” to talk about trends in class action lawsuits in the financial services industry.

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