ARTICLE
12 April 2024

Preparing For Expected Changes To Exempt Salary Threshold

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Foley & Lardner

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Foley & Lardner LLP looks beyond the law to focus on the constantly evolving demands facing our clients and their industries. With over 1,100 lawyers in 24 offices across the United States, Mexico, Europe and Asia, Foley approaches client service by first understanding our clients’ priorities, objectives and challenges. We work hard to understand our clients’ issues and forge long-term relationships with them to help achieve successful outcomes and solve their legal issues through practical business advice and cutting-edge legal insight. Our clients view us as trusted business advisors because we understand that great legal service is only valuable if it is relevant, practical and beneficial to their businesses.
As summer looms near, employers of salaried workers would be wise to prepare for anticipated increases to the salary basis threshold for certain categories of exempt employees under the Fair Labor Standards Act (FLSA).
United States Employment and HR
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As summer looms near, employers of salaried workers would be wise to prepare for anticipated increases to the salary basis threshold for certain categories of exempt employees under the Fair Labor Standards Act (FLSA).

As a reminder, on August 30, 2023, the U.S. Department of Labor (DOL) announced a notice of proposed rulemaking to increase (i) the minimum salary amount required to be paid to executive, administrative, or professional employees, and (ii) the required annual compensation to be paid to "highly compensated employees" in order for these employees to be considered exempt from the FLSA's federal overtime pay requirements. (Employers should also note that some states may have minimum exempt salary thresholds that are higher than the current or proposed federal minimum.)

Specifically, the proposed rule would increase the minimum salary required to be paid to an executive, administrative, or professional employee in order for that employee to be exempt, from $684 per week ($35,568 annually) to $1,059 per week ($55,068 annually). The DOL also seeks to increase the annualized salary threshold for the exemption for "highly compensated employees," from the current $107,432 per year to $143,988 per year. Importantly, the aforementioned amounts proposed by the DOL were based on 2022 earnings data and, if implemented, the final rule amounts might be higher than what is currently proposed.

The proposed rule was open for public comment until November 7, 2023. The DOL has not yet issued a final rule, though it is expected sometime in 2024. Assuming the DOL follows a similar timeline as it did while enacting a final rule in 2019, we can predict that a final rule on the exempt salary threshold may come into effect around July 2024. The final rule also may be challenged in the courts, as similar Obama-era rules were, which could prolong enactment and enforcement.

If the final rule goes into effect this summer, employers will need to revisit their compensation strategies for exempt employees earning less than approximately $56,000 per year. Employers have a number of options to ensure compliance with the anticipated increased minimum salary threshold, including keeping employees at their current salary but paying overtime compensation for hours worked over 40 in a given week, increasing the salaries of employees to meet the new threshold, or converting employees to an hourly compensation arrangement. We also encourage employers to treat this change as an opportunity to conduct an internal audit of employee job duties and classifications, to ensure that employees are properly classified as exempt.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

ARTICLE
12 April 2024

Preparing For Expected Changes To Exempt Salary Threshold

United States Employment and HR

Contributor

Foley & Lardner LLP looks beyond the law to focus on the constantly evolving demands facing our clients and their industries. With over 1,100 lawyers in 24 offices across the United States, Mexico, Europe and Asia, Foley approaches client service by first understanding our clients’ priorities, objectives and challenges. We work hard to understand our clients’ issues and forge long-term relationships with them to help achieve successful outcomes and solve their legal issues through practical business advice and cutting-edge legal insight. Our clients view us as trusted business advisors because we understand that great legal service is only valuable if it is relevant, practical and beneficial to their businesses.
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