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New Compensation Requirements for Exempt Employees: What Employers Need to Know!

May 2, 2024: Written by David Frankel, Esq.


On April 23, 2024, the U.S. Department of Labor (“DOL”) finalized a rule (the “Rule”) to increase the compensation required for employees to be classified as exempt from minimum wage and overtime under the Fair Labor Standards Act (“FLSA”) under certain exemptions.

 

Currently, employees compensated on a salaried or fee basis of at least $684/week ($35,568 annualized) may be classified as exempt under the administrative, executive, professional, and computer employee exemptions (or $27.63/hour for this exemption) – provided such employees also meet the applicable duties test(s).[1] The highly compensated employees exemption (“HCE”) requires that the employee be paid a total annual compensation of at least $107,432 (again, subject to certain duties being met). This chart provides a summary of the current thresholds:

 

Exemption

Required Compensation

Executive

$684/week (no fee basis)

Administrative

$684/week

Professional

$684/week

Computer Employee

$684/week or $27.63/hour

HCE

$684/week and $107,432/year

 

The Rule increases the minimum thresholds as of July 1, 2024 to $844/week ($43,888 annualized) and for July 1, 2025 to $1,128/week ($58,656 annualized). The HCE will likewise be increased to $132,964/year on July 1, 2024 and to $151,164/year on January 1, 2025.

 

Exemption

Required Compensation 7/1/24

Required Compensation 7/1/25

Executive

$844/week

$1,128/week

Administrative

$844/week

$1,128/week

Professional

$844/week

$1,128/week

Computer Employee

$844/week or $27.63/hour

$1,128/week or $27.63/hour

HCE

$844/week and $132,964/year

$1,128/week and $151,164/year

 

The Rule also contemplates that the thresholds will be increased in the future to reflect current earnings data. The DOL anticipates that the first update will occur on July 1, 2027, and every three years thereafter, using the most recent, publicly available, U.S. Bureau of Labor Statistics data on earnings for salaried workers.

 

What this means for employers is straightforward – as of July 1, 2024, if an employee’s compensation does not meet or exceed the requirements of the Rule, then such employee cannot be classified as exempt from minimum wage or overtime under Federal law. However, it is expected that there will be a myriad of legal challenges to the Rule, which may delay the Rule or stop the Rule from going into effect altogether. Additionally, employers should also be aware of state-level exemption laws, as these may have higher thresholds and/or eliminate certain exemptions recognized under Federal law. 

 

If you need any assistance regarding the new exemption thresholds, please reach out to the Staffing Team at Becker LLC and we will be happy to offer some guidance.

 


[1] The fee basis does not apply to the executive exemption.

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