Business and Legal Insights

On April 23, 2024, the U.S. Department of Labor (“Department”) announced its final rule, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees, which revises regulations for determining whether certain salaried employees are exempt from minimum wage and overtime requirements under section 13(a)(1) of the Fair Labor Standards Act (“FLSA”). Exempt employees include those employed in a bona fide executive, administrative, or professional capacities, as defined by the Department’s regulations, sometimes referred to as the “EAP exemptions.”

Presently, in order to be considered exempt, an employee generally must (a) receive a predetermined and fixed salary of a specified weekly amount, which is not subject to reduction due to variations in quality or quantity of work performed and (b) perform the duties of the particular exemption, as provided in the Department’s regulations. There is also an alternative test for certain highly compensated employees (“HCEs”) who are paid a salary, earn a higher total annual compensation, and satisfy the duties test for that particular exemption. The current weekly salary level, which was established when the Department last updated the EAP exemption regulations in 2019, sits at $684 per week (equivalent to a $35,568 annual salary), and the HCE total annual compensation was set at $107,432 per year.  Those earning thresholds have been in effect since January 1, 2020.

Since the 2019 rule, salaried workers in the U.S. have experienced significant wage-growth, decreasing the effectiveness of the $684 per week salary level. As such, starting on July 1, 2024, the Department will raise the required salary level for exempt employees to $844 per week (equivalent to a $43,888 annual salary), and the HCE annual compensation level will increase to $132,964. Six months later, on January 1, 2025, the Department will implement a new salary methodology, raising the salary level to $1,128 per week (equivalent to a $58,656 annual salary), and the HCE annual compensation level will increase to $151,164. Future updates will continue in kind every three years.