Understanding the DOL’s Final Rule updating minimum salary requirements

This article is an update on the proposal for minimum salary requirements.

The U.S. Department of Labor (DOL) has released its Final Rule, updating the minimum salary requirement for employees to be exempt from overtime pay under the Fair Labor Standards Act (FLSA). The increase in minimum salary thresholds for administrative, executive, and professional employees will be rolled out in two phases, the first beginning July 1.  

What’s new?  

Starting July 1, the minimum salary requirement increases to $844/week ($43,888 annually) for administrative, executive, or professional employees to qualify for an exemption from overtime pay. This is up from the current requirement of $684/week, and beginning January 1, 2025, the minimum salary increases to $1,128/week. The change may require formerly exempt employees to be reclassified as non-exempt.  

Who is exempt? 

In July, administrative, executive, and professional employees must earn $684 weekly to become exempt. These “white collar exemptions” are only available for employees who meet both the duties test and the salary test. The duties test assesses whether the employee’s responsibilities align with executive, administrative, or professional duties defined by the FLSA. The salary-basis test mandates a fixed salary unaffected by work quantity or quality variations. To be qualified for an exemption as an administrative, executive, or professional employee, the FLSA has additional requirements, which are:  

For the Administrative Exemption: 

  • The primary role of the employee should revolve around performing office or non-manual tasks directly linked to managing business operations, either for the employer or their clients. 
  • The employee’s main function should involve exercising discretion and independent judgment on important matters. 

For the Executive Exemption: 

  • The primary responsibility of the employee should involve overseeing the entire business or a recognized department within it. 
  • The employee needs to regularly supervise at least two full-time employees or their equivalent. 
  • The employee should have the authority to make significant decisions regarding hiring, firing, or influencing the status changes of other employees. 

For the Professional Exemption: 

  • The primary responsibility of the employee should involve performing intellectually demanding work that requires consistent use of discretion and judgment. 
  • The specialized knowledge required for the job should typically be acquired through extensive and specialized education or training in a particular field of science or learning. 

Additionally, “highly compensated employees” will also see an increase in the minimum requirement. Currently, the minimum salary for highly compensated employees is $107,432/year, which increases to $132,432/year July 1. That will increase to $151,164/year in 2025.  

Bonuses, incentives, commission

There is some flexibility for employers to use certain extra payments to meet part of their employees’ salary requirements, but the payments must be regular and not just promised. The Final Rule allows bonuses, incentives, or commissions to count towards up to 10% of the employee’s standard salary requirement. There are several pieces to this addition:  

  1. Nondiscretionary bonuses, incentives, or commissions: These are types of payments that are predetermined and not left up to the discretion of the employer. Employees know the expectations of these payments and the criteria to meet them. 
  2. Payment frequency: The bonuses, incentives, or commissions must be paid at least quarterly. This ensures employees receive this additional compensation regularly.  
  3. Fallback for missed criteria: If an employee fails to meet the conditions required to earn these payments and, as a result, their total pay falls below what is required by law, the employer may be held responsible for retroactively paying that employee overtime.  

Did anything stay the same?  

Yes, the duties test remains the same. An employee’s duties must be executive, administrative, or professional, as defined by the FLSA.  

What should employers do?  

Employers must be proactive in preparing for changes resulting from the Final Rule. This involves assessing which employees no longer qualify for the overtime exemption when the rule is implemented. Employers should evaluate current salary structures, consider adjustments to ensure compliance and communicate transparently with affected employees. By staying informed and taking preemptive action, employers can navigate these regulatory changes effectively. 

Keep note of state wage laws because they may differ from federal law and may not immediately change.  

As an employer, it is important to take action now by evaluating your employee’s exempt or non-exempt status and making plans to adjust accordingly.  

 If you have any questions, reach out to our team of Abacus Professionals at 417.823.7171 or by email at info@abacuspro.com.