Act Now: FLSA Rule Changes Become Effective July 1, 2024
On July 1, most salaried workers earning less than $844 per week will become eligible for overtime pay. On January 1, 2025, that eligibility expands to most salaried workers earning less than $1,128 per week.
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The US Department of Labor (DOL) announced on April 23, 2024 its final rule that details increases to employee salary requirements for overtime as part of the Fair Labor Standards Act (FLSA). 1 Organizations across numerous industries face potential compliance and monetary impacts.
As a refresher, the FLSA uses two tests — the duties test and the salary test — to determine whether an employee is exempt from receiving overtime pay. The employee must pass both the tests.
The first test centers on the employee's responsibilities in the organization. Employers must consider the duties test, which is critical to the classification of a particular role.
The following roles are those an employer most commonly exempts from overtime and are directly affected by the rule:
The Outside Sales exemption listed in the title of the DOL's final rule isn't impacted by the salary threshold changes the final rule addresses.
The duties test includes extensive rules with many nuances. Generally, however, the employee enjoys wide latitude and independent decision-making authority on matters of significance and isn't merely adhering to established procedures and protocols.
The new rule changes the salary test. An employee who passes the duties test also must receive a weekly salary that meets or exceeds the DOL's established threshold. With a few exceptions, employers typically must guarantee that salary for any week in which an employee performs any work, regardless of the number of hours the employee works.
In 2016, a similar proposed change would have moved the salary threshold from $455 per week ($23,660 annualized) to $913 per week ($47,476). Courts blocked this proposal shortly before it was scheduled for implementation.
DOL addressed the topic again in 2019 and enacted changes on January 1, 2020. These changes moved the threshold to $684 per week ($35,568 annualized) and allowed for up to 10% of non-discretionary bonuses to satisfy threshold requirements. Now the salary test has changed again.
As outlined in the DOL table below, the revised salary test now includes several changes in application threshold for standard and highly compensated employee total annual salaries, beginning July 1. Further updates go into effect on January 1, 2025, with changes to the calculation methodology. As earnings data evolves, the final rule allows for updates of these level every three years.
| Date | Standard weekly/annual salary | Highly compensated employee total annual compensation threshold 2 |
| Before July 1, 2024 | $684/$35,568 | $107,432, including at least $684 per week paid on a salary or fee basis |
| July 1, 2024 | $844/$43,888 | $132,964, including at least $844 per week paid on a salary or fee basis |
| January 1, 2025 | $1,128/$58,656 | $151,164, including at least $1,128 per week paid on a salary or fee basis |
Note that the FLSA rule states the salary threshold in weekly terms. The annualized amounts assume a 40-hour workweek, but employers cannot average the minimum weekly amounts over time or prorate them if an employee works fewer than 40 hours per week. The employee must receive the minimum weekly salary threshold amount in order to pass the salary test.
Additionally, final rule applies to the salary for the Computer Professional exemption. However, it's the only exemption that allows qualifying exempt employees to be paid hourly instead of salaried, as long as their hourly rate is at least $27.63. The hourly rate threshold wasn't increased as part of the rule, but changes to that hourly rate can be expected in time as the updated salary amount creeps closer to the $27.63 hourly equivalent.
As is the case with minimum wage requirements, it's critically important to be aware that some states, including California and New York, have established salary thresholds higher than those outlined in the final rule. Employers must comply with the salary thresholds that are the most generous to affected employees.
As with the 2016 rule change, legal challenges to the revised rule will arise, and we don't know how those challenges will play out in court. The implications of this change may be significant to some employers and may involve several moving parts. Meantime, employers must prepare now rather than take a wait-and-see approach. Here's how:
Gallagher supports employers with comprehensive solutions, including exemption review, compensation and classification structures, and implementation strategies. We help organizations develop a comprehensive understanding of the laws and regulations that apply to them, to inform decisions across people strategies and operations.
Learn more about our HR Consulting services or ask to speak with a consultant about your specific needs.
