The U.S. Department of Labor is Increasing the Salary Threshold Requirement for Certain Exempt Positions under the Fair Labor Standards Act

By: Katya M. Lancero

The Fair Labor Standards Act (“FLSA”) is a federal law requiring private and government-sector employers to pay employees no less than the federal minimum wage for all hours worked and overtime compensation for all hours worked over 40 in a workweek unless those employees are exempt from the FLSA.  States often have more protective minimum wage and overtime laws.  Arizona’s minimum wage is higher than the federal minimum wage (currently, the Arizona minimum wage is $14.35 per hour).  Conversely, Arizona does not have overtime compensation laws, and thus, the federal FLSA overtime laws apply in Arizona. 

Employees who are (1) paid at least a certain salary threshold and (2) perform certain exempt duties are “exempt” from the federal minimum wage and overtime requirements under the FLSA under the so-called “white-collar” exemptions, which include the executive, administrative, professional, computer employee, outside sales, and highly compensated employee exemptions. 

For example, to be exempt under the executive employee exemption under the FLSA, an employee must not only be paid the requisite minimum salary threshold discussed in this article, but the following exempt duties must be met as well:

1. The employee’s primary duty must be managing the enterprise or managing a customarily recognized department or subdivision of the enterprise.
2. The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalents.
3. The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees must be given particular weight.

On April 23, 2024, the U.S. Department of Labor announced a final rule, which will take effect on July 1, 2024, increasing the minimum salary threshold requirement under the executive, administrative, and professional (“EAP”) exemptions and the highly compensated employee total annual compensation threshold.  Both thresholds will be increased again on January 1, 2025.

Specifically, effective July 1, 2024, the final rule increases the standard salary threshold under the EAP exemptions from $684 per week ($35,568 per year) to $844 per week ($43,888 per year).  Moreover, effective January 1, 2025, this standard salary threshold will increase to $1,128 per week ($58,656 per year).

Under the highly compensated employee exemption, an employee is exempt if the employee earns a certain amount of annual compensation and performs certain exempt duties.  Effective July 1, 2024, the total annual compensation threshold under this exemption will increase from $107,432 per year to $132,964 per year.  Effective January 1, 2025, it will increase to $151,164 per year.   The final rule also provides for future updates of the aforementioned levels for the EAP and highly compensated employee exemptions every three years to reflect current earnings data. 

Suppose your exempt employees are not earning the newly established standard salary threshold under the executive, administrative, and professional exemptions or the annual compensation threshold under the highly compensated employee exemption by the effective dates set forth above. In that case, those employees will no longer be exempt under the FLSA. They will therefore be entitled to the federal minimum wage and overtime compensation at the rate of 1.5 x the employee’s regular rate of pay for all hours worked over 40 hours in a work week.  As noted above, however, even if the newly established salary thresholds are met, the employee must also perform certain exempt duties to be properly considered exempt under the FLSA.

Furthermore, there are only limited circumstances under which an employer may deduct from an exempt employee’s salary.  Improper deductions convert exempt employees to non-exempt employees.  If an employee is not properly classified as exempt, employers are liable to employees for damages associated with unpaid federal minimum wage, unpaid overtime compensation, and liquidated damages (essentially, double damages).

Notably, the FLSA’s exemptions do not exempt employers in Arizona from paying the Arizona minimum wage for all hours worked.  Thus, even if your employees are exempt from the federal minimum wage and overtime compensation under the FLSA, they must still be paid at least the Arizona minimum wage for all hours worked.  

If you have questions regarding the new final DOL rule, your company’s wage and hour practices, and/or whether your employees are properly classified as “exempt” under the FLSA, please email Katya Lancero at Lancero@SacksTierney.com or Shar Bahmani at Bahmani@SacksTierney.com.