Yesterday, the Department of Labor announced that it had finalized new FLSA regulations that will increase the minimum salary that must be paid to exempt executive, administrative and professional employees and minimum hourly rate for computer employees in order for them to qualify for the FLSA exemptions from overtime and minimum wage requirements. In general, the minimum salary level will increase to $844/week (or $43,888/year) on July 1, will increase to $1,128/week (or $58,656/year on January 1) and will be readjusted based on inflation every three years thereafter on July 1. There are slightly different levels for employees in academic positions, American Samoa and Northern Marinara Islands. The minimum salary level for Highly Compensated Employees will also increase to $132,964/year on July 1 and to $151,164 on January 1. The new regulation is set forth below:
§ 541.600 Amount of salary required.
(a) Standard salary level. To qualify as an exempt
executive, administrative, or professional employee under section 13(a)(1) of
the Act, an employee must be compensated on a salary basis at a rate per week
of not less than the amount set forth in paragraphs (a)(1) through (3) of this
section, exclusive of board, lodging or other facilities, unless paragraph (b)
or (c) of this section applies. Administrative and professional employees may
also be paid on a fee basis, as defined in § 541.605.
(1) Beginning on July 1, 2024, $844
per week (the 20th percentile of weekly earnings of full-time nonhourly workers
in the lowest-wage Census Region and/or retail industry nationally).
(2) Beginning on January 1, 2025,
$1,128 per week (the 35th percentile of weekly earnings of full-time nonhourly
workers in the lowest-wage Census Region).
(3) As of July 1, 2027, the level
calculated pursuant to § 541.607(b)(1).
(b)
Commonwealth of the Northern Mariana Islands, Guam, Puerto Rico, U.S. Virgin
Islands. To qualify as an exempt executive, administrative, or professional
employee under section 13(a)(1) of the Act, an employee in the Commonwealth of
the Northern Mariana Islands, Guam, Puerto Rico, or the U.S. Virgin Islands
employed by employers other than the Federal Government must be compensated on
a salary basis at a rate of not less than $455 per week, exclusive of board,
lodging or other facilities. Administrative and professional employees may also
be paid on a fee basis, as defined in § 541.605.
(c) American
Samoa. To qualify as an exempt executive, administrative, or professional
employee under section 13(a)(1) of the Act, an employee in American Samoa
employed by employers other than the Federal Government must be compensated on
a salary basis at a rate of not less than $380 per week, exclusive of board,
lodging or other facilities. Administrative and professional employees may also
be paid on a fee basis, as defined in § 541.605.
(d) Frequency of payment. The salary level
requirement may be translated into equivalent amounts for periods longer than
one week. For example, the $1,128 per week requirement described in paragraph
(a)(2) of this section would be met if the employee is compensated biweekly on a
salary basis of not less than $2,256, semimonthly on a salary basis of not less
than $2,444, or monthly on a salary basis of not less than $4,888. However, the
shortest period of payment that will meet this compensation requirement is one
week.
(e) Alternative salary level for academic administrative
employees. In the case of academic administrative employees, the salary
level requirement also may be met by compensation on a salary basis at a rate
at least equal to the entrance salary for teachers in the educational
establishment by which the employee is employed, as provided in §
541.204(a)(1).
(f) Hourly rate for computer employees. In the case
of computer employees, the compensation requirement also may be met by
compensation on an hourly basis at a rate not less than $27.63 an hour, as
provided in § 541.400(b).
(g) Exceptions to the standard salary criteria. In
the case of professional employees, the compensation requirements in this
section shall not apply to employees engaged as teachers (see § 541.303);
employees who hold a valid license or certificate permitting the practice of
law or medicine or any of their branches and are actually engaged in the
practice thereof (see § 541.304); or to
employees who hold the requisite academic degree for the general practice of
medicine and are engaged in an internship or resident program pursuant to the
practice of the profession (see § 541.304). In the case of medical occupations,
the exception from the salary or fee requirement does not apply to pharmacists,
nurses, therapists, technologists, sanitarians, dietitians, social workers,
psychologists, psychometrists, or other professions which service the medical
profession.
9. Amend § 541.601 by revising paragraph (a), the first
sentence of paragraph (b)(1), and paragraph (b)(2) to read as follows:
§ 541.601 Highly
compensated employees. (a) An employee shall be exempt under section
13(a)(1) of the Act if the employee receives total annual compensation of not
less than the amount set forth in paragraph (a)(1) through (4) of this section,
and the employee customarily and regularly performs any one or more of the
exempt duties or responsibilities of an executive, administrative, or
professional employee identified in subpart B, C, or D of this part:
(1) Beginning on July 1, 2024,
$132,964 per year (the annualized earnings amount of the 80th percentile of
full-time nonhourly workers nationally).
(2) Beginning on January 1, 2025,
$151,164 per year (the annualized earnings amount of the 85th percentile of
full-time nonhourly workers nationally).
(3) As of July 1, 2027, the total
annual compensation level calculated pursuant to § 541.607(b)(2).
(4) Where the annual period covers
periods during which multiple total annual compensation levels apply, the
amount of total annual compensation due will be determined on a proportional
basis.
(b)(1) Total annual compensation must include at least a
weekly amount equal to that required by § 541.600(a)(1) through (3) paid on a
salary or fee basis as set forth in §§ 541.602 and 541.605, except that §
541.602(a)(3) shall not apply to highly compensated employees. * * *
(2) If an employee’s total annual compensation does not
total at least the amount set forth in paragraph (a) of this section by the
last pay period of the 52-week period, the employer may, during the last pay
period or within one month after the end of the 52-week period, make one final
payment sufficient to achieve the required level. For example, for a 52-week
period beginning January 1, 2025, an employee may earn $135,000 in base salary,
and the employer may anticipate based upon past sales that the employee also
will earn $20,000 in commissions. However, due to poor sales in the final
quarter of the year, the employee only earns $14,000 in commissions. In this
situation, the employer may within one month after the end of the year make a
payment of at least $2,164 to the employee. Any such final payment made after
the end of the 52-week period may count only toward the prior year’s total
annual compensation and not toward the total annual compensation in the year it
was paid. If the employer fails to make such a payment, the employee does not
qualify as a highly compensated employee, but may still qualify as exempt under
subpart B, C, or D of this part. * * * * *
10. Amend § 541.602 by revising the first sentence of
paragraph (a)(3) and the first sentence of paragraph (a)(3)(i) to read as
follows:
§ 541.602 Salary basis. * * * * * (a)(3) Up to ten
percent of the salary amount required by § 541.600(a) through (c) may be
satisfied by the payment of nondiscretionary bonuses, incentives, and
commissions, that are paid annually or more frequently. * * *
(i) If by the last pay period of the 52-week period the sum
of the employee’s weekly salary plus nondiscretionary bonus, incentive, and
commission payments received is less than 52 times the weekly salary amount
required by § 541.600(a) through (c), the employer may make one final payment
sufficient to achieve the required level no later than the next pay period
after the end of the year. * * * * * * * *
11. Amend § 541.604 by a. Revising the second, third, and
fourth sentences of paragraph (a) and; b. Revising the third sentence in
paragraph (b). The revisions and additions read as follows:
§ 541.604 Minimum guarantee plus extras. (a) * * *
Thus, for example under the salary requirement described in § 541.600(a)(2), an
exempt employee guaranteed at least $1,128 each week paid on a salary basis may
also receive additional compensation of a one percent commission on sales. An
exempt employee also may receive a percentage of the sales or profits of the
employer if the employment arrangement also includes a guarantee of at least
$1,128 each week paid on a salary basis. Similarly, the exemption is not lost
if an exempt employee who is guaranteed at least $1,128 each week paid on a
salary basis also receives additional compensation based on hours worked for
work beyond the normal workweek. * * *
b) * * * Thus, for example under the salary requirement
described in § 541.600(a)(2), an exempt employee guaranteed compensation of at
least $1,210 for any week in which the employee performs any work, and who
normally works four or five shifts each week, may be paid $350 per shift
without violating the $1,128 per week salary basis requirement. * * *
12. Amend § 541.605 by revising paragraph (b) to read as
follows:
§ 541.605 Fee basis. * * * * * (b) To determine whether the
fee payment meets the minimum amount of salary required for exemption under
these regulations, the amount paid to the employee will be tested by
determining the time worked on the job and whether the fee payment is at a rate
that would amount to at least the minimum salary per week, as required by §§
541.600(a) through (c) and 541.602(a), if the employee worked 40 hours. Thus,
for example under the salary requirement described in § 541.600(a)(2), an
artist paid $600 for a picture that took 20 hours to complete meets the $1,128
minimum salary requirement for exemption since earnings at this rate would
yield the artist $1,200 if 40 hours were worked.
13. Add § 541.607 to read as follows:
§ 541.607 Regular updates to amounts of salary and
compensation required. (a) Initial update—(1) Standard salary level.
Beginning on July 1, 2024, the amount required to be paid per week to an exempt
employee on a salary or fee basis, as applicable, pursuant to § 541.600(a)(1)
will be not less than $844.
(2) Highly compensated employees. Beginning on July 1, 2024,
the amount required to be paid in total annual compensation to an exempt highly
compensated employee pursuant to § 541.601(a)(1) will be not less than
$132,964.
(b) Future updates—(1) Standard salary level.
(i) As of July 1, 2027, and every 3
years thereafter, the amount required to be paid to an exempt employee on a
salary or fee basis, as applicable, pursuant to § 541.600(a) will be updated to
reflect current earnings data.
(ii) The Secretary will determine
the future update amounts by applying the methodology in effect under §
541.600(a) at the time the Secretary issues the notice required by paragraph
(b)(3) of this section to current earnings data.
(2) Highly compensated employees.
(i) As of July 1, 2027, and every 3
years thereafter, the amount required to be paid in total annual compensation
to an exempt highly compensated employee pursuant to § 541.601(a) will be
updated to reflect current earnings data.
(ii) The Secretary will determine
the future update amounts by applying the methodology used to determine the
total annual compensation amount in effect under § 541.601(a) at the time the
Secretary issues the notice required by paragraph (b)(3) of this section to
current earnings data.
(3) Notice.
(i) Not fewer than 150 days before
each future update of the earnings requirements under paragraphs (b)(1) and (2)
of this section, the Secretary will publish a notice in the Federal Register
stating the updated amounts based on the most recent available 4 quarters of
CPS MORG data, or its successor publication, as published by the Bureau of
Labor Statistics.
(ii) No later than the effective
date of the updated earnings requirements, the Wage and Hour Division will
publish on its website the updated amounts for employees paid pursuant to this
part.
(4) Delay of updates. A future update to the earnings
thresholds under this section is delayed from taking effect for a period of 120
days if the Secretary has separately published a notice of proposed rulemaking
in the Federal Register, not fewer than 150 days before the date the update is
set to take effect, proposing changes to the earnings threshold(s) and/or
updating mechanism due to unforeseen economic or other conditions. The
Secretary must state in the notice issued pursuant to paragraph (b)(3)(i) of
this section that the scheduled update is delayed in accordance with this
paragraph (b)(4). If the Secretary does not issue a final rule affecting the
scheduled update to the earnings thresholds by the end of the 120-day extension
period, the updated amounts published in accordance with paragraph (b)(3) of
this section will take effect upon the expiration of the 120-day period. The
120-day delay of a scheduled update under this paragraph will not change the
effective dates for future updates of the earnings requirements under this
section.
NOTICE: This summary is designed merely to inform and alert
you of recent legal developments. It does not constitute legal advice and does
not apply to any particular situation because different facts could lead to
different results. Information here can change or be amended without notice.
Readers should not act upon this information without legal advice. If you have
any questions about anything you have read, you should consult with or retain
an employment attorney.
