As an important compliance reminder - the first increase in the Final Rule went into effect on July 1, 2024. There is an additional increase to go into effect of January 1, 2025. My goal is to keep this as brief, while being as detailed as possible to help you understand the basics of the rule in one place.

In order for employees to be considered exempt, their salary must meet the minimum wage threshold and they must meet the primary duty test under the specific exemption they qualify under. Effective July 1, 2024 - the minimum salary threshold increased to $43,888 annual ($844 a week). Exempt employees MUST be paid at least this amount, plus meet the applicable primary duties test (refer to the white collar exemptions below).

BASICS OF THE FINAL RULE
As noted above, the minimum salary threshold increase went into effect on July 1, 2024. Moving forward, there are incremental increases that will go into effect according to the final rule. Almost ALL U.S. employers MUST comply. Note that there are VERY FEW employers or industries for which these rules do not apply.

EXEMPT VS. NON-EXEMPT
Employers must pay employees a minimum salary in order for those employees to be considered exempt from overtime rules.

Exempt employees are considered to be exempt from overtime rules- meaning they do not need to get paid overtime for hours worked over 40 in one week. Exempt does not just mean “salaried” employee. Often, the terms are used interchangeably, but please note they are not.

Non-Exempt employees are NOT exempt from overtime rules- meaning these employees must receive overtime pay for hours worked over 40 in one week. Overtime pay is 1.5 times the regular hourly wage. Non-exempt doesn’t necessarily mean “hourly” employee. Again, these terms are often used interchangeably. Non-exempt employees can be paid on an hourly basis OR salaried basis. No matter the pay basis, hours worked over 40 in one week MUST be paid the appropriate overtime rate. In other words - both hourly non-exempt AND salaried non-exempt MUST keep track of all of the hours that they work. Refer to the explanation of what Hours Worked includes via the Wage and Hour Division (WHD) of the Department of Labor (DOL).

Employers can elect to pay qualified exempt employees overtime, but MUST pay non-exempt employees overtime.

WHITE COLLAR EXEMPTIONS
Along with meeting the minimum salary threshold, in order to be considered an exempt employee, the duties of the employee’s position MUST also meet the primary duties test under the applicable exemption below. Refer to the WHD’s Fact Sheet for full details and qualifications. The list below provides a VERY brief overview of the duties test.

• Executive exemption- managing the enterprise, a department, or subdivision; regularly direct the work of two+ employees; have the authority to hire or fire employees.

• Administrative exemption- performance of office or nonmanual work directly related to management or general business operations; exercise of discretion and independent judgment in matters of significance.

• Professional exemption-

  • Learned professionals (i.e., accountant, attorney, nurse, engineer)- work requiring advanced knowledge; exercise discretion; advanced knowledge in a fiend of science or learning; customarily acquired by a prolonged course of specialized intellectual instruction.

  • Creative professionals (i.e., composer, singer, graphic designer, etc.)- performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

  • Teachers, doctors, and artists may also qualify under this exemption.

• Computer-Related occupation exemption- higher-level system analyst techniques and procedures; testing and designing operating systems; must be compensated on a salary basis of the minimum salary threshold OR at least $27.63 per hour. May include positions such as network analyst or developer or software engineer and is not meant for lower-level support roles.

• Highly Compensated exemption- paid a total compensation of at least $132,964 as of July 1, 2024 ($151,164 effective January 1, 2025). Must customarily and regularly perform one or more of the exempt duties in the executive, administrative, or professional exemptions.

• Outside Sales exemption- a salesperson who regularly is engaged away from the employer’s place of employment; primary duty is making sales or obtaining orders for contracts. The minimum salary and salary basis requirements do NOT apply to exempt outside sales employees.

There are also a few additional exemptions based on specific industries to be aware of. The most common industries that can utilize an industry exemption include agricultural activities or operations, commissioned sales employees, and motor carrier employees.

There are certain positions that are also not eligible to be exempt, even if they could qualify otherwise. The DOL considers these jobs to be “outside the scope” of the exemptions and therefore, MUST be paid overtime wages, as applicable.

These exempt-ineligible positions include:

• Blue-Collar Workers (i.e., non-management production-line employees and non-management maintenance, construction workers, carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, operation engineers, longshoremen, and other similar trades).

• First Responders (i.e., police, fire fighters, paramedics, etc.) regardless of rank or pay.

• Other positions could include inside sales employees, paralegals and legal assistants, and executive and administrative assistants.

• Refer to the DOL guidance for additional information.

SALARY THRESHOLD HISTORY
I think it’s helpful to see the history of the IMPLEMENTED minimum salary threshold. Here is a brief summary of those historical enactments and increases:

• 1938- first minimum salary threshold implemented of $1,560 annually

• 1940- the threshold increased to $2,600 annually for executive and administrative exemptions, and $1,560 annually for professional exemptions

• 1949- the threshold increased to $5,200 annually for all 3 exemptions

• 2004 (most drastic changes)- the minimum salary threshold increased to $23,660 annually ($455 per week)

• January 1, 2020- the minimum salary threshold increased to $35,568 annually ($684 per week)

• July 1, 2024 - the minimum salary threshold increased to $43,888 annually ($844 per week)

• January 1, 2025- minimum annual salary threshold will increase to $58,656 (1,128 per week)

*Note that some U.S. states have their own minimum salary thresholds that require a minimum salary ABOVE the federal level.

Refer to the Resources section on the Complete HR Solutions website for links to helpful resources on the FLSA and other important information.

Reach out to Complete HR Solutions for assistance on the minimum salary threshold increase, or any other HR-related topics.