On April 23, 2024, the Department of Labor (DOL) announced a final rule raising the minimum salary thresholds to qualify for certain overtime exemptions under the Fair Labor Standards Act (FLSA).[1] The final rule, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees, is set to take effect on July 1, 2024.
The final rule updates and revises the regulations concerning exemptions from minimum wage and overtime pay requirements for executive, administrative, and professional (EAP) employees, including highly compensated EAP employees.
Background
Employees are exempt from the FLSA’s minimum wage and overtime protections if they are employed in a bona fide executive, administrative, or professional capacity.[2]
To fall within the EAP exemption, an employee generally must be paid a salary equal to or above a specified weekly salary level (currently $684 per week) and primarily perform executive, administrative, or professional duties, as defined by DOL regulations.[3]
Highly compensated employees are also exempt from the FLSA’s minimum wage and overtime provisions.[4] Under the FLSA, a “highly compensated” employee is one who is paid equal to or above a specified annual total compensation (currently $107,432 per year), primarily performs office or non-manual work, and customarily and regularly performs duties of an exempt executive, administrative, or professional employee.
The New Final Rule
The DOL’s new final rule increases both the standard salary level for the EAP exemption and the annual compensation threshold for the highly compensated employee exemption. The final rule also includes a mechanism for updating both of those thresholds every three years, based on available earnings data.
As shown in the table below, the final rule increases the standard (i.e., the salary necessary to qualify for an exemption) salary level for the EAP exemption from $684 per week to $884 per week, effective July 1, 2024. The final rule likewise increases the total annual compensation for the highly compensated employee exemption, from $107,432 to $132,964, effective July 1, 2024. Note that the highly compensated employee exemption also requires that the employee be paid a weekly salary at or above the standard salary level for an EAP employee.
The final rule includes additional increases to both of those thresholds, effective January 1, 2025 (see below chart). Beyond that, the final rule includes a mechanism by which the standard salary level and highly compensated employee total annual compensation level shall be automatically adjusted commensurate with available economic data every three years, beginning on July 2, 2027.
| Effective Date | Standard Salary Level | Highly Compensated Employee Total Annual Compensation |
| Current (before July 1, 2024) | $684 per week ($35,568 per year) | $107,432 per year; at least $684 per week |
| July 1, 2024 | $884 per week ($43,888 per year) | $132,964 per year; including at least $844 per week |
| January 1, 2025 | $1,128 per week ($58,656 per year) | $151,164 per year; including at least $1,128 per week |
|
July 2, 2027, and every 3 years thereafter |
To be determined by applying available data to the methodology used to set the salary level in effect at the time of the final rule | To be determined by applying available data to the methodology used to set the salary level in effect at the time of the final rule |
Possible Legal Challenges
The DOL’s final rule is expected to face legal challenges that could delay and even block its implementation. Similar final rules passed under both the Obama and Trump administrations were challenged in federal court, with mixed results.
In 2017, in Nevada v. United States DOL, a federal district court in Eastern Texas struck down the Obama administration’s 2016 final rule, which more than doubled the standard salary level for the EAP exemption.[5] The Court ruled that the proposed increase would make the EAP exemption depend predominantly on salary rather than job duties, contrary to Congress’s intent.[6]
In 2019, the Trump administration issued its own final rule, increasing the standard salary level more modestly and tethering the new level to a national earnings percentile consistent with past thresholds.[7] On August 31, 2023, in Mayfield v. United States DOL, a federal district court in Western Texas upheld the rule, holding the salary threshold set by the rule was within the DOL’s authority in deciding how to determine EAP exemptions.[8] The case is currently on appeal in the Fifth Circuit.
Notably, in a separate case before the United States Supreme Court decided in 2023, Justice Kavanaugh (joined by Justice Alito) expressed some doubt as to whether the DOL may regulate the EAP exemption with a salary threshold at all – and, if so, whether the manner in which employees receive their compensation (e.g., salary, commission, or bonus) is relevant to determining whether the EAP exemption applies.[9]
Finally, further muddying the waters, there are two cases[10] currently pending before the United States Supreme Court regarding the application of the Chevron test[11] – which is the test used by courts to assess whether an administrative agency empowered by Congress to enact regulations, such as the DOL, has exceeded its rulemaking authority on any particular regulation enacted. The outcome of those cases may impact how a court must assess the DOL’s rulemaking authority and whether the final rule is within that authority.
Preparing for Implementation of the Final Rule
While it is possible that legal challenges may delay or even prevent implementation of the final rule, employers should prepare for the possibility that the final rule will take effect on July 1, 2024, as planned.
Employers should determine which, if any, currently exempt employees will become non-exempt under the new rule; that is, which executive, administrative, or professional employees currently earn a salary greater than $684 per week ($35,568 per year), but less than $884 per week ($43,888 per year). This may not apply to anyone at your agency. Under the final rule, those employees will be entitled to the FLSA’s minimum wage and overtime protections.
Note that the FLSA does not permit employers to pay a prorated salary amount to a part-time exempt employee. Thus, a part-time exempt employee must meet the full amount of the salary basis.
If employers do not raise salaries (for employees whose salaries are under the new thresholds) to meet or exceed the new threshold, employers should evaluate the financial impact that overtime pay for those employees may have and assess strategies to mitigate any projected cost increases. Such strategies may include limiting overtime work for non-exempt employees, reducing salaries to neutralize overtime costs, or increasing salaries of affected employees to preserve exempt status.
Employers should take care to ensure that any actions taken in response to the final rule are in accordance with governing laws, collective bargaining obligations, and the employer’s own policies and practices.
Liebert Cassidy Whitmore attorneys are closely monitoring developments in relation to this Special Bulletin and are able to advise on the impact this could have on your organization. If you have any questions about this issue, please contact our Los Angeles, San Francisco, Fresno, San Diego, or Sacramento office.
[1] 89 FR 32842; See published document at: https://www.federalregister.gov/documents/2024/04/26/2024-08038/defining-and-delimiting-the-exemptions-for-executive-administrative-professional-outside-sales-and
[2] 29 U.S.C. § 213(a)(1).
[3] See, e.g., 29 C.F.R. §§ 541.100, 541.200, 541.300, and 541.600.
[4] 29 C.F.R. § 541.601
[5] Nevada v. United States DOL, 275 F.Supp.3d 795 (E.D. Tex. Aug. 31, 2017).
[6] Id. at 807.
[7] Mayfield v. United States DOL, 2023 U.S. Dist. LEXIS 168054, *5-6 (W.D. Tex. Sept. 20, 2023).
[8] Id. at *15-18.
[9] Helix Energy Sos. Grp., Inc. v. Hewitt, 143 S. Ct. 677, 695 (2023) (Kavanaugh, J., dissenting).
[10] See Loper Bright Enters. v. Raimondo, 45 F.4th 359 (D.C. Cir. Aug 12, 2022) (cert. granted, 143 S. Ct. 2429 (2023)); Relentless, Inc. v. Department of Commerce, 62 F.4th 621 (1st Cir. Mar. 16, 2023) (cert. granted, 144 S. Ct. 325 (2023)).
[11] See Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984)