FLSA Exempt Salary Threshold Increases July 1, 2024
Beginning on July 1, 2024, workers earning less than $43,888 annually ($844 weekly) will become newly eligible for overtime under a final rule issued today by the U.S. Department of Labor. Employers with exempt employees earning less than that amount will need to either reclassify those employees as non-exempt and begin paying overtime or increase their salaries to meet the new salary threshold for exempts under the Fair Labor Standards Act ("FLSA").
Background
Unless specifically exempted, an employee covered by the FLSA must receive pay for hours worked in excess of 40 in a workweek at a rate not less than one and one-half their regular rate of pay.
Currently, to fall within an exemption to overtime, an employee generally must:
be paid a salary, meaning that they are paid a predetermined and fixed amount that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”);
be paid at least a specified weekly salary level, which is currently $684 per week (the equivalent of $35,568 annually for a full-year employee) in the current regulations (the “salary level test”); and
primarily perform executive, administrative, or professional duties, as provided in the DOL’s regulations (the “duties test”).
The regulations contain a special rule exempting “highly compensated” employees who are paid total annual compensation of $107,432 or more if:
The employee earns total annual compensation of $107,432 or more, which includes at least $684 per week 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 FLSA also exempts certain employees from the salary basis or salary level tests of the FLSA, such as doctors, teachers, and lawyers.
The New Rule
Under the new rule, the salary threshold for employees exempt under the executive, administrative, professional exemptions will increase to $43,888 annually on July 1, 2024. For highly compensated employees, the salary threshold increases to $132,694, including at least $844 per week paid on a salary or fee basis.
Future Increases
The rule imposes additional increases beginning January 1, 2025. For exempts under the executive, administrative, professional, outside sales, exemptions the minimum salary threshold increases to $58,656 annually ($1,128 weekly). For highly compensated employees, it increases to $151,164 annually, including at least $1,128 per week paid on a salary or fee basis.
Finally, beginning July 1, 2027, and every three years thereafter, the minimum salary required for exempt status under the salary test will automatically increase. For executive, administrative, and professional exemptions, the salary level will adjust to remain at the 35th percentile of weekly earnings of full-time non-hourly workers in the lowest-wage Census Region (currently the South).
For highly compensated employees, the salary threshold will increase every 3 years to the annual earnings of the 85th percentile of full-time non-hourly workers nationally.
Preparing for the Rule
In advance of the rule’s effective date, employers should consider taking the following steps:
Review Your Compensation. Review current position classifications and pay scales to determine how many exempt employees earn between $35,568 and $43,888 annually. Estimate the potential cost of increasing the pay of those employees currently earning below the proposed threshold.
Gather Data. For exempt positions currently earning below $55,068 annually, track and analyze the number of hours worked per week to evaluate the potential cost of converting those employees to non-exempt, hourly workers.
Use this as an opportunity to correct misclassification problems.
Be Mindful of Employee Morale. Many employees view being paid on a salary basis as more prestigious than being paid by the hour and may view the change as a type of demotion. Formerly salaried exempt employees may also resent having to clock in and clock out and keep track of their hours worked.
Prepare for Wage Compression Issues. Wage compression occurs when there's little difference in pay between employees regardless of differences in their respective knowledge, skills, experience, or abilities. As the bottom of pay rates move up, it can create pressure to increase the wages or salaries of the positions above.
Review Policies Related to Exempt/Non-Exempt. Pay attention to company policies related to pay status such as vacations, insurance payments, status symbols such as meeting attendance.
Consider other aspects. Timekeeping procedures, approval of overtime, use of company equipment or personal devices to conduct business during non-work hours, meal and rest breaks, and remote work, among others, are up to date.
Editor's Note: We will be conducting an Executive Briefing webinar on the new exempt overtime rule on May 23, 2024 from 9:30 to 11:00 a.m. We will sending out an announcement to our subscribers next week.
FTC Voted Minutes Ago Approving Final Rule Banning Non-Competes
The Federal Trade Commission ("FTC") voted moments ago to ban non-compete clauses for nearly all workers and render unenforceable existing non-competes for workers below the level of senior executives.
The final rule will ban new non-compete agreements for all workers and require companies let current and past employees know they won’t enforce them. Companies will also have to throw out existing non-compete agreements for most employees, although in a change from the original proposal, the agreements may remain in effect for senior executives.
The new rule is slated to go into effect in 120 days after it’s published in the Federal Register. It is expected to face legal challenges before taking effect, with the national Chamber of Commerce announcing it plans to sue over the rule as soon as tomorrow.
Expansive EEOC Regs on Pregnant Workers Fairness Act Impose New Obligations on Employers Beginning June 18, 2024
An expansive final rule from the EEOC interpreting the Pregnant Workers Fairness Act will take effect on June 18, 2024. The new federal rule will expand the definition of protection, fortify the obligation of employers to engage in discussions of reasonable accommodation with the pregnant employees, and add new prohibitions on employer conduct.
The PWFA, a federal law that went into effect on June 27, 2023, requires employers with 15 or more employees to accommodate an employee or applicant’s known limitations related to pregnancy, childbirth, or related conditions.
The PWFA Final Rule takes a broad view of “pregnancy, childbirth, or related medical conditions,” covering lactation, miscarriage, stillbirth and “having or choosing not to have an abortion” as well as medical conditions related to pregnancy or childbirth. Limitations are “known” to the employer under the regs if the employee or the employee’s representative communicates them to the employer.
Once an employee communicates those limitations to the employer, the PWFA requires an interactive discussion to identify reasonable accommodations. These may include providing more frequent breaks; permitting sitting/standing; changing work schedules; allowing part-time, reduced hours, or telework; granting a leave of absence; adjusting parking assignments; providing light duty; making the work environment more accessible; job restructuring; temporarily suspending one or more essential functions of the job; acquiring or modifying equipment, uniforms, or devices; or adjusting or modifying examinations or policies.
The regulations prohibit an employer from:
Failing to make a reasonable accommodation for the known limitations of an employee or applicant, unless the accommodation would cause an undue hardship;
Requiring an employee to accept an accommodation other than a reasonable accommodation arrived at through the interactive process;
Denying a job or other employment opportunities to a qualified employee or applicant based on the person’s need for a reasonable accommodation;
Requiring an employee to take leave if another reasonable accommodation can be provided that would let the employee keep working;
Punishing or retaliating against an employee or applicant for requesting or using a reasonable accommodation for a known limitation under the PWFA, reporting or opposing unlawful discrimination under the PWFA, or participating in a PWFA proceeding (such as an investigation);
Coercing individuals who are exercising their rights or helping others exercise their rights under the PWFA.
What Employers Should Consider with the PWFA and Reasonable Accommodations
It may be prudent for employers to consider training supervisors about the PWFA. First level supervisors may be particularly likely to receive accommodation requests and should be trained on how to respond, including how to avoid retaliating against those who request or use a reasonable accommodation.
Bear in mind that workers do not need to use specific words to request an accommodation to begin the interactive process. Once an employee requests an accommodation, employers should begin engaging in the interactive process.
In addition, a worker may need different accommodations as the pregnancy progresses, they recover from childbirth, or the related medical condition improves or gets worse.
Supreme Court Lowers Standards for Discrimination Claims in Job Transfers
Employers face a higher bar in defending discrimination claims related to lateral job transfers of employees after an April 17th decision by the U.S. Supreme Court in Muldrow v. City of St. Louis.
Courts have long held that employees must prove that they suffered an adverse employment action to pursue a Title VII discrimination claim. Merely experiencing workplace bias based on a protected identity is not actionable unless the bias results in a job-related disadvantage. Major decisions such as refusing to hire, firing, demoting, reducing pay, or denying a promotion have all long been held to meet the requirement of an adverse employment action.
The issue in Muldrow was whether a job transfer without any change in rank or salary can also be challenged in a discrimination claim.
The Plaintiff, Jatonya Clayborn Muldrow argued that her employer, the St. Louis Police Department, transferred her because she is a woman. Muldrow worked as a plainclothes officer in the department’s specialized Intelligence Division.
A new Intelligence Division commander transferred Muldrow out of the unit to replace her with a male police officer. That officer, he later testified, seemed like a better fit for the division’s “very dangerous” work.
While Muldrow’s rank and pay remained the same in the new position, her responsibilities, perks, and schedule did not. Instead of working with high-ranking officials on the departmental priorities lodged in the Intelligence Division, she now supervised the day-to-day activities of neighborhood patrol officers. She also lost her FBI clearance that came with the position as well as use of an FBI vehicle. The change of jobs also made Muldrow’s workweek less regular. She had worked a traditional Monday-through-Friday week in the Intelligence Division. After the transfer, she was placed on a rotating schedule that often involved weekend shifts.
The district court held the transfer did not effect a significant change in working conditions or produce a “material employment disadvantage.” The 8th Circuit Court of Appeals affirmed, determining that Muldrow did not show that the transfer caused a “materially significant disadvantage.”
The Supreme Court Decision
The Supreme Court reversed the lower courts’ rulings, holding that to make out a Title VII discrimination claim, a transferee need only “show some harm respecting an identifiable term or condition of employment” rather than “significant,” “material” or “serious” harm.
The court added that if Muldrow could properly prove her allegations about her job transfer, she would overcome this low bar “with room to spare.”
Takeaway for Employers
While the court’s ruling was limited to job transfers, the “harm” standard will likely apply to a broad range of employment decisions that similarly involve no changes to title or pay---such as revoking remote, hybrid or flextime work options---as well as other actions that affect employees’ “responsibilities, perks, and schedules.”
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