DOL Announces Changes to Exempt Employee Thresholds

By Mandy Nevius, MBA, SPHR, Human Resources Director

DOL Announces Changes to Exempt Employee Thresholds

What business leaders should know about the new FLSA regulations

The Department of Labor recently announced updates to the Fair Labor Standards Act (FLSA) that will have a lasting impact on workforce planning. The new regulations introduce updated compensation thresholds for employees of exempt status within an executive, administrative, or professional (EAP) role. The updated regulations will take effect on January 1, 2025, with an initial adjustment period beginning July 1, 2024. With the rapidly approaching deadlines in mind, business leaders should review their current staff classifications and compensation packages to ensure compliance.

About the Fair Labor Standards Act

The FLSA was established in 1938 to set standards for minimum wage, overtime pay, and other employment practices in the United States. The Act includes exemptions for employees in executive, administrative, or professional roles—commonly known as the “white-collar” exemptions. These exemptions were designed to exclude those typically in higher-paid, decision-making positions from overtime and minimum wage provisions, assuming that their compensation and job perks appropriately reflect their responsibilities.

Updates to these exemptions are made periodically to reflect changes to the economy and labor practice standards. The latest updates are a continuation of these efforts to ensure that the law is representative of present-day workplace realities.

Changes in the 2024 regulation

Employees qualify for EAP exemption if they are paid a fixed amount, above a certain wage minimum specified by the Department of Labor, that will not change based on the quantity or quality of work performed. These salaried employees must get their full pay for any week they do any work, with some specific exceptions.

The FLSA has made three major updates to these exemption standards:

  1. The Standard Salary Level is now set at the 35th percentile of the average weekly earnings for full-time salaried workers. The minimum will increase from $684 per week to $1,128 per week, or $58,656 annually.
  2. The Highly Compensated Employee (HCE) Threshold is now set at the 85th percentile of full-time salaried workers in the United States, equating to $151,164 annually.
  3. To ensure the thresholds continue to reflect the changing economic climate, the Department of Labor has introduced a process of making regular adjustments to the threshold every three years, beginning July 1, 2027.

Exceptions to the exemption rule

Salary basis requirements applies to all executive, administrative, professional, and highly compensated white-collar employees, except for:

  • Outside salespersons
  • Employees working as teachers, practicing lawyers and doctors, or medical interns and residents
  • Computer professionals who are paid on an hourly basis at a minimum of $27.63 per hour
  • Executive, administrative, or professional employees in the motion picture industry who are paid a base rate of at least $1,043 per week or a proportionate amount based on the number of days worked

Phasing in the new regulation

The phased approach to implementing the regulation changes is designed to give employers sufficient time to adjust their payroll systems and compliance strategies. Some businesses may face challenges in adjusting to the new salary thresholds due to budget constraints.

As we near the implementation date, business leaders should contact their Human Resource professionals to ensure their company aligns with the new standards. This regulation change can serve as an opportunity to revisit compensation strategies, ensuring they are fair, competitive, and aligned with organizational goals.

Stay tuned…

It is expected that the new rule will face legal challenges arguing that it violates federal wage law by including many lower-paid supervisors and professionals who typically would not be eligible for overtime.

The information provided here is intended for general informational purposes only and does not constitute legal advice. Please consult your labor and employment attorney if you have questions. Your Keiter Opportunity Advisors are closely monitoring these and other changing regulations that may impact your business.

 

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About the Author


Mandy Nevius

Mandy Nevius, MBA, SPHR, Human Resources Director

Mandy has over 20 years experience working with public accounting firms in the areas of training, career development, compensation, and recruiting. She shares her knowledge and insights on labor regulations and upcoming changes with her colleagues and the Firm’s clients.

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The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.

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