Department of Labor Issues Rule Raising Salary Level for Exempt Employees

May 8, 2024

 Aigner S. Carr,  Mollie G. Mohan, Robert Nickel portrait Robert A. Nickel

On April 23, 2024, the United States Department of Labor (DOL) released its final rule increasing the minimum salary requirements for exempt (sometimes referred to as “salaried”) employees employed in a “bona fide executive, administrative, or professional capacity (commonly referred to as “white-collar” employees). [1] The final rule increases the minimum salary level from $35,568 per year for exempt employees to $58,656 per year.

The final rule is set to roll out in two waves: Employers are required to increase employees who fall under the “white collar” exemptions to a salary of $844 per week ($43,888 per year) by July 1, 2024 and to a salary of $1,128 per week ($58,656 per year) by January 1, 2025. For Highly Compensated Employees (“HCE”), the minimum salary is increased to $132,964 per year, effective July 1, 2024, and $151,164 effective January 1, 2025.

The “white collar” exemption regulations require three conditions to be met for an employee to qualify:

  • the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in quality or quantity of work performed (the salary basis test);
  • the salary amount must meet a minimum specified amount (the salary level test); and
  • the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (the duties test).

The “HCE” exemption regulations require that:

  • The employee earns total annual compensation of the annual salary minimum, paid on a salary or fee basis;
  • The employee’s primary duty includes performing office or non-manual work; and
  • The employee customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee.

The employer bears the burden of establishing the applicability of an exemption.

The new salary levels represent an approximately 60% increase from the current $684 per week ($35,568 per year) and represent the 35th percentile of weekly earnings for full-time salaried employees in the lowest wage Census Region (the South).

Employees who qualify for “white collar” or “HCE” exemptions must either be paid the new minimum salary or be reclassified as hourly (and be paid overtime). The DOL estimates that roughly 4 million more employees will be eligible for overtime pay under the new rule if salaries are not increased to meet the new salary minimum.

Like the proposed rule, the final rule notes that the salary level will be automatically updated every three years based on earnings data, with July 1, 2027, scheduled to be the first update.

Notedly, the final rule does not change existing rules for teachers, who are not subject to a salary level. The rule also does not alter the duties test for “white collar” or highly compensated employees. Finally, the rule does not impact benefits for which an employee may be entitled.

Employers must either increase employees’ salaries to reflect the new salary threshold or reclassify employees as non-exempt. If employees are reclassified as non-exempt, the burden is on the employer to track employee time and pay any earned overtime pay. As a best practice, employers should conduct a workforce classification audit to determine the employees who may be impacted by this new rule.

Tueth Keeney will continue to monitor developments related to this regulation, including the effect the final regulation may have on your institution or business. If you have questions about the impact of this final rule, please contact a Tueth Keeney attorney.

[1] The DOL received approximately 33,309 comments regarding the proposed rule during the notice and comment period, which closed on November 7, 2023. See Tueth Keeney’s prior insight on the Proposed Rule.

Sign up to receive Insight notifications via email  here.

Labor and Employment – Tueth, Keeney, Cooper, Mohan & Jackstadt, P.C. has successfully represented a number of businesses, large and small, throughout the Midwest in labor and employment matters. Our broad range of experience includes employment discrimination litigation, wage-hour investigations, affirmative action revision plans development, INS audits, and a variety of traditional labor matters.