On April 23, 2024, the Department of Labor (DOL) announced a significant update to the overtime exemption criteria under the Fair Labor Standards Act (FLSA). This new rule will escalate the minimum salary thresholds needed for certain employees to qualify for overtime exemptions. The DOL is rolling out its new overtime regulation in two phases, with the first salary threshold increase occurring on July 1 and a second on January 1, 2025.

The update, titled “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees,” will increase the minimum weekly salary for the FLSA’s three white-collar overtime exemptions (executive, administrative, or professional) to $1,128 per week, or $58,656 annually, by January 1, 2025. This is a substantial rise from the previous $684 per week. Furthermore, the threshold for “highly compensated employees” will rise to $151,164 annually, up from $107,432.

This rule, which follows a proposal from September 2023, marks the first revision of the overtime exemption salary thresholds since 2019. It is expected to increase the number of employees eligible for overtime by redefining nonexempt statuses, thereby potentially changing the scope of job categories that qualify for overtime under the FLSA.

Notably, the rule sets the new minimum weekly salary at $844 (equivalent to an annual salary of $43,888) starting July 1, 2024, before the January 2025 increase. It also adjusts the compensation for highly compensated employees to $132,964 on July 1, 2024. These thresholds will be updated triennially based on the latest wage statistics.

As with previous changes, this new final rule could face legal challenges, similar to the objections that thwarted the 2016 attempt to modify the exemption threshold. If the rule survives these challenges, employers will need to reassess their compensation strategies. They might have to either adjust salaries to maintain exemption statuses or consider reclassifying employees who are currently exempt but fall below the new salary thresholds.