On April 23, 2024, the United States Department of Labor (USDOL) announced a final rule that updates and revises the regulations issued under the federal Fair Labor Standards Act (FLSA) regarding the exemption from overtime pay.

Employees are exempt from the FLSA’s overtime protections if they are employed in a bona fide executive, administrative, or professional capacity, as those terms are defined in the USDOL’s regulations. To fall within one of these exemptions, an employee generally must meet three tests:

1. Be paid a salary, meaning that they are paid a predetermined and fixed amount that is not subject to reduction because of variations in the quality or quantity of work;

2. Be paid at least a specified weekly salary level

3. Primarily perform executive, administrative, or professional duties, as provided in the USDOL’s regulations.

The USDOL’s regulations also provide an alternative test for certain highly compensated employees who are paid a salary, earn above a higher total annual compensation level, and satisfy a minimal duties test.

The new rule issued on April 23, 2024 increases the standard salary level and the highly compensated employee total annual compensation threshold on the rule’s effective date on July 1, 2024, and on January 1, 2025, when changes in the methodologies used to calculate these levels become applicable. The final rule also provides for future updates of these levels every three years to reflect current earnings data. These scheduled increases are as follows:

  • On July 1, 2024, the USDOL will update the standard salary level using the existing methodology, raising the salary level from $684 per week to $844 per week (equivalent to $43,888 per year). For highly compensated employees, the annual compensation level to be exempt from overtime pay will increase from $107,432 to $132,964.
  • On January 1, 2025, the USDOL will implement the new salary methodology, setting the standard salary level at the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region (the South), resulting in a salary level of $1,128 per week (equivalent to $58,656 per year). For highly compensated employees, the compensation level will be set at the annualized weekly earnings of the 85th percentile of full-time salaried workers nationally, resulting in a compensation level of $151,164.
  • Future updates to the salary and compensation levels will occur every three years and will apply up-to-date wage data to the salary and compensation methodologies in the regulations at the time of the update. The next three-year update will take place on July 1, 2027.