Understanding the New FLSA Minimum Salary Threshold for Exempt Employees

The U.S. Department of Labor (DOL) has finalized recent changes to the Fair Labor Standards Act (FLSA), including a significant increase to the minimum salary threshold for exempt employees. The FLSA establishes rules for how many U.S. workers get paid. It sets the stage for things like minimum wage and who should get overtime pay when they work extra hours.

The “white collar” exemptions under the Fair Labor Standards Act (FLSA) refer to regulations that determine which employees are exempt from certain protections offered by the act, specifically overtime pay. The FLSA requires that most employees in the U.S. be paid at least the federal minimum wage for all hours worked and receive overtime pay at a rate of one and a half times the regular rate of pay for any hours worked over 40 in a workweek. However, certain employees who meet specific criteria are exempt from these requirements.

Here’s a simplified explanation of the “white collar” exemption rules:

Criteria for Exemption

The “white collar” exemptions apply to employees who meet all the following criteria:

1. Salary Basis Test: The employee is paid a fixed salary that does not vary based on the quality or quantity of work.
2. Salary Level Test: The employee’s salary meets or exceeds a certain threshold set by the FLSA.
3. Duties Test: The employee’s duties primarily involve executive, administrative, or professional tasks as defined by the FLSA.

Categories of Exempt “White Collar” Employees

1. Executive Exemption

• The employee’s primary duty is managing the enterprise or a recognized department or subdivision.
• The employee regularly directs the work of at least two full-time employees or their equivalent.
• The employee has the authority to hire or fire other employees, or their suggestions and recommendations on hiring, firing, advancement, promotion, or any other change of status of other employees are given particular weight.

2. Administrative Exemption

• The employee’s primary duty is to perform office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers.
• The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

3. Professional Exemption

• The employee’s primary duty is to perform work requiring advanced knowledge, defined as work that is predominantly intellectual in character and that includes work requiring the consistent exercise of discretion and judgment.
• The advanced knowledge must be acquired in a field of science or learning.
• The advanced knowledge must be customarily acquired through a prolonged course of specialized intellectual instruction.

The FLSA also exempts certain computer professionals, outside sales employees, and highly compensated employees who meet specific criteria.

Effective July 1, 2024, the minimum salary threshold for exemption will increase to $43,888 annually. On January 1, 2025, the threshold will increase to $58,656 annually.

These changes are anticipated to extend overtime pay eligibility to many employees currently classified as exempt.

It is important to note that job titles alone do not determine exempt status. The specific job duties and salary must meet all the requirements set by the FLSA. Employers should periodically review their employees’ job duties and salary levels to ensure compliance with the exemption criteria.

In the short term, employers that currently pay any employees below the upcoming salary threshold should take immediate steps to evaluate job descriptions to ensure the correct FLSA status and make any salary adjustments necessary to comply with the new threshold.

Employers who fail to properly classify employees as exempt or non-exempt may face legal consequences, including owing back pay, damages, and penalties.

By understanding the “white collar” exemption rules, employers can make informed decisions about employee classifications, and employees can better understand their entitlements under the FLSA.