Tight Around The White Collar: Navigating DOL's Latest FLSA Overtime Regulations

Understanding the final rule amendments to the FLSA

The U.S. Department of Labor (DOL) has published its final rule amending the overtime regulations of the federal wage and hour law, under the Fair Labor Standards Act (FLSA). 

The new rule requires an increase to the salary threshold for executive, administrative, and professional workers (EAP) and highly compensated employees (HCE) to qualify for exemption from overtime. Employers must comply with the final rule by July 1, 2024. 

The final rule also phases the salary threshold changes in two incremental increases and provides for regular updates of these salary thresholds every three years beginning July 1, 2027, to reflect current earnings data. Given the DOL is estimating that 4 million workers will be impacted by the new rule and become eligible for overtime, this change raises a lot of questions for many employers. 

Here is our guidance on some of the questions your organization may be asking now. 

Q: What would qualify an employee as being exempt from the FLSA’s minimum wage and overtime requirements? 

A: To determine if a position is exempt (not subject to overtime), the position must satisfy three criteria:

1. Salary or Fee Basis: The employee must be paid on a "salary or fee basis." A salary basis means that the employee is paid a predetermined and fixed amount of pay for each pay period regardless of the quality or quantity of work performed. A fee basis means an employee is paid an agreed sum for a single job, regardless of the time required for its completion.

2. Salary Level/Threshold: The DOL sets a minimum salary threshold to qualify for exemption (currently, it is $684 per week). For employees paid on a fee basis, the fee payment must also satisfy the minimum salary level requirement, meaning the fee payment must be at a rate that would amount to the salary threshold per week if the employee worked 40 hours.

3. Job Duties: Each category of white-collar or EAP exemption, i.e. the executive, administrative, and professional exemptions, has its own criteria relating to the primary job duties the employee performs. In addition to being paid on a salary basis at the mandated salary threshold, the employee must satisfy every job duty requirement for one of the EAP categories to qualify for exemption.

Q. Can employers use bonuses or other compensation to satisfy the new salary threshold?

A: Yes. The final rule still allows employers to use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to ten percent of the salary threshold requirement. An employer must pay the exempt executive, administrative, or professional employee on a salary basis, at least 90 percent of the standard salary level, in each pay period. 

The remaining portion of the required salary level (up to ten percent) may be fulfilled through the payment of non-discretionary bonuses or incentive payments so long as the payments are paid at least annually. In addition, employers may use non-discretionary bonuses and incentive payments earned during a 52-week period to satisfy the HCE total annual compensation threshold, but such bonuses and incentive payments cannot be used to satisfy the weekly standard salary level portion of the HCE test.

Q. Does this impact the Outside Sales exemption?

A: No. The Outside Sales exemption does not have a salary threshold requirement.

Q: Can exempt and nonexempt employees coexist in the same job title? 

A: Yes. If the position satisfies the job duties test and employees are paid on a salary/fee basis, those meeting the salary threshold can remain exempt, while employees who are paid under the salary threshold become nonexempt without affecting the exempt status of the former group.

Q: Can salaries be increased to meet the new threshold to maintain the exemption?

A: Yes. Employers can choose to raise salaries to maintain exempt status for employees (this is assuming that the employee is paid on a salary basis and meets the job duties requirements of an exemption). An employer may also decide to increase the salary for some positions to keep them exempt while not increasing the salary in a different position and allowing that position to become non-exempt.

Q: What are some key things an employer should consider?

A: Morale and possible resistance from exempt employees to becoming non-exempt. Sometimes, employees view becoming non-exempt as a demotion and will resist clocking in and documenting their time when they are used to being paid for time working as an exempt employee. Communication is key, and so is training and monitoring, to ensure newly classified non-exempt employees understand what "compensable time" is and if they are properly recording that time.

Q: Do employees have to be paid hourly if they become non-exempt?

A: No. You can have a salaried non-exempt employee, but the employee must still track their hours and is entitled to overtime for all hours worked in excess of 40 in a workweek. Please consult your employment counsel to assist you in reclassifying an exempt employee to a salaried non-exempt employee.

The swift implementation of these changes, paired with substantial increases in the salary thresholds, may prompt legal challenges like those faced by previous attempts to amend the FLSA's overtime provisions. 

Employers should stay informed about the legal landscape and be prepared to make further adjustments if the rule is challenged in court. 

An Office Managing Shareholder in Baker Donelson’s Tallahassee office, Dena H. Sokolow has more than 25 years of experience counseling and defending employers and management on a wide range of labor and employment matters.