White Collar Exemptions

Bona fide executive, administrative, professional, outside sales, and computer (collectively referred to as EAP) employees are exempt "white collar" employees under the Fair Labor Standards Act (FLSA). These employees are not covered by minimum wage, overtime, and certain recordkeeping requirements of the FLSA and are commonly referred to as being exempt.

The three tests for determining exempt status measure the actual duties and responsibilities of the employee, not the job title. To fall within the EAP exemption, employees generally must:

(1) Be paid a salary, meaning that they are paid a predetermined and fixed amount that is not subject to reduction because of variations in the quality or quantity of work performed (the salary basis test);

(2) Be paid at least a specified weekly salary level (the salary level test); and

(3) Primarily perform executive, administrative, or professional duties, as provided in the DOL regulations (the duties test).

New Salary Thresholds Begin in July 2024
On April 23, 2024, the U.S. Department of Labor (DOL) announced a final rule to increase the minimum salary level for the FLSA EAP or "white collar" exemptions.

The final rule increases the minimum salary level in two steps:

• On July 1, the minimum salary level increases from $684 to $844 per week (or from $35,568 per year to $43,888 per year).
  
  
• On January 1, 2025, the minimum salary level increases from $844 to $1,128 per week (or from $43,888 per year to $58,656 per year).

Prior to the final rule, the DOL last updated the EAP exemption regulations in 2019. That update set the standard salary level test at $684 per week (or $35,568 per year). These earnings thresholds have been in effect since January 1, 2020.

Levels Will Be Updated
The final rule also requires the salary level be updated every 3 years to match the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region. This means that on July 1, 2027, the salary level will be updated.

The final rule states that updated thresholds will be published as a notice in the Federal Register not fewer than 150 days before each update is scheduled. The final rule includes a provision to allow the DOL to temporarily delay a scheduled update where unforeseen economic or other conditions warrant.

HCE Salary Requirements Increase
The final rule increases the salary requirement for highly compensated employees (HCEs) from $107,432 to $132,964 per year on July 1, then from $132,964 to $151,164 per year on January 1, 2025. The HCE level also will be adjusted every 3 years.

As part of an exempt HCE's annual compensation, the employee must receive at least the new standard salary amount of $884 per week on a salary or fee basis on July 1. This threshold increases to $1,128 on January 1, 2025.

Severability Added
The final rule adds a severability provision to allow each of the final rule's provisions to be considered separate and severable and operate independently from one another. If any provision is held to be invalid or unenforceable or stayed pending further agency action, the severability clause requires that the provision be allowed to go into effect to the extent possible. If the provision is held to be completely invalid or unenforceable, the provision is to be severed from the overall regulations so that the remaining regulations are not affected and remain in full effect.

Items That Did Not Change
In August 2023, the DOL announced a notice of proposed rulemaking (NPRM) to increase the minimum salary level. A few items from the NPRM were not adopted in the final rule, including:

• Applying the standard salary level to the U.S. territories subject to the federal minimum wage (Puerto Rico, Guam, the Virgin Islands, and the Commonwealth of the Northern Mariana Islands). The salary threshold remains $455 per week.
  
  
• Updating the special salary levels for American Samoa. The salary threshold remains $380 per week.
  
  
• Updating salary levels for the motion picture industry. The special weekly base rate for the motion picture industry remains $1,043 per week (or a proportionate amount based on the number of days worked).

The text in the final rule states the DOL "will address these aspects of its proposal in a future final rule."

Although no changes were proposed in the NPRM, the final rule did not make any changes to the three tests for determining whether an employee is exempt or nonexempt.