The U.S. Department of Labor (“DOL”) has issued its Final Rule, which increases the salary threshold that determines whether employees are exempt from overtime pay under the Federal Law, Fair Labor Standards Act (“FLSA”). Under Federal law, employers must meet a salary threshold to maintain an employee’s administrative, executive or professional exemption, referred to as the “white-collar” exemptions, from minimum wage and overtime rules under the FLSA. The DOL estimates that approximately three to four million U.S. workers will either become eligible for overtime or receive salary increases to remain exempt.

Effective July 1, 2024, the exempt salary increases to $844/week ($43,888 annually). Employees who make less than $844/week are not exempt and are eligible to receive overtime for all hours worked in excess of 40 hours per week.

Effective January 1, 2025, the exempt salary increases to $1,128/week ($58,656 annually).

The Final Rule also impacts an exemption for highly compensated employees who do not meet other elements of the “white-collar” exemptions. For highly compensated employees, the minimum salary will be $132,964 on July 1, 2024, and increase to $151,164 on January 1, 2025.

The Final Rule also creates automatic increases to exempt salary thresholds in the future. The first increase is scheduled for July 1, 2027, and subsequent increases will occur every three years afterward. These increases will be based on up-to-date earnings data.

California is largely unaffected by the Final Rule. Like the FLSA, California has minimum salaries for employees who are exempt. California’s salary levels are higher ($66,560 per year). Therefore, California employers must meet the state salary threshold to create exempt employment relationships. California also does not allow employers to use non-salary bonuses, such as commissions or incentives, to satisfy the salary threshold.

California also does not permit an employer to classify an employee as exempt under the “highly compensated” employee standard. California requires that exempt employees must meet both the minimum salary test and the duties test. California’s duties test is also more onerous than the federal duties test—a worker in California must have decision-making responsibilities and exempt duties for more than half of each workday to qualify as exempt.

California employers should evaluate whether they need to make any changes to maintain employees in exempt status and discuss such changes with their employment legal counsel.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.