Client Alert: New Rule on Exempt Employee Status

On April 23, 2024, the Department of Labor (“DOL”) issued a new rule on employee eligibility for “exempt” status. Unlike non-exempt employees, exempt employees are not subject to minimum wage and overtime time laws. However, to be exempt from these laws, employees must meet or exceed an established compensation threshold. The DOL’s new rule increases the threshold for future application of recognized exemptions.

Several types of employees may qualify as exempt, including certain administrative, bona fide executive, or supervisory employees; computer analysts or programmers; creative or learned professionals; highly compensated employees; and outside salespeople.

Under the DOL’s current rule, to be exempt, most employees must be paid salary equivalent to at least $684 per week or $35,568 per year; in addition, the total annual compensation of highly compensated employees must be at least $107,432, including salary equivalent to at least $684 per week.

Under the DOL’s new rule:

As of July 1, 2024, most exempt employees must be paid salary equivalent to at least $844 per week or $43,888 per year; the total annual compensation of highly compensated employees must be at least $132,964, including salary equivalent to at least $844 per week.
As of January 1, 2025, most exempt employees must be paid salary equivalent to at least $1,128 per week or $58,656 per year; the total annual compensation of highly compensated employees must be at least $151,64, including salary equivalent to at least $1,128 per week.
As of July 1, 2027 and every three years thereafter, the minimum compensation levels will be adjusted based on compensation-related data available at the time.

Employers will need to comply with the DOL’s new rule no later than July 1, 2024, ideally with the future changes in mind. For many, this will require evaluating and adjusting pay bands, updating payroll systems, revising templates for contracts (such as severance agreements) and notices (such as termination notices), and amending handbooks.

This summary is for general informational purposes only. Circumstances might vary. Consult with an attorney for legal advice on your specific rights or responsibilities.

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Administrative employee exemption: Fact Sheet #17C: Exemption for Administrative Employees Under the Fair Labor Standards Act (FLSA) | U.S. Department of Labor (dol.gov )

Bona fide executive employee exemption: Fact Sheet #17B: Exemption for Executive Employees Under the Fair Labor Standards Act (FLSA) | U.S. Department of Labor (dol.gov )

Computer professional exemption: Fact Sheet #17E:Exemption for Employees in Computer-Related Occupations Under the Fair Labor Standards Act (FLSA) | U.S. Department of Labor (dol.gov )

Creative or learned professional exemption: Fact Sheet #17D: Exemption for Professional Employees Under the Fair Labor Standards Act (FLSA) | U.S. Department of Labor (dol.gov )

Highly compensated employee exemption: Fact Sheet #17H: Highly-Compensated Workers and the Part 541-Exemptions Under the Fair Labor Standards Act (FLSA) | U.S. Department of Labor (dol.gov )

Outside salesperson exemption: Fact Sheet #17F: Exemption for Outside Sales Employees Under the Fair Labor Standards Act (FLSA) | U.S. Department of Labor (dol.gov )