The Department of Labor (DOL) recently updated its rules around white-collar exemptions under the Fair Labor Standards Act (FLSA), affecting classifications for overtime pay exemptions. This shift is important for businesses as they navigate compliance and ensure their employee classifications align with the new standards.
Staying compliant means understanding how these rules affect who qualifies as exempt from overtime—and ensuring workplace posters accurately reflect these changes.
Here’s what every employer should know.
What Are White-Collar Exemptions?
Under the FLSA, the “white-collar” exemptions apply to executive, administrative, and professional employees. Employees who fall under these categories, and meet certain criteria, may be exempt from overtime pay, meaning they won’t receive overtime pay for working more than 40 hours in a week.
To qualify, employees must satisfy three tests:
- Salary basis test: Employees must earn a fixed salary, not hourly wages. The standard salary level for overtime exemption is now set at $844 per week (equivalent to $43,888 annually). It will increase to $1,128 per week ($58,656 annually) on January 1, 2025.
- Salary level test: Employees must earn a minimum salary level set by the DOL. Currently, this threshold is $132,964. It will jump to $151,164 on January 1, 2025.
- Duties test: Employees must primarily perform executive, administrative, or professional duties as defined by the DOL.
What Are The Key Changes In The DOL’s Rules?
The new rules have raised the salary threshold for exempt employees, meaning employees must now earn more than the previous threshold to qualify for the white-collar exemption. This change means many employees who were previously exempt may now qualify for overtime pay if their salary falls below the updated threshold.
The new rules also impact the exemption threshold for highly compensated employees. These employees—often earning significantly above the standard white-collar salary threshold—may be exempt if they perform at least one of the exempt duties of an executive, administrative, or professional role. With the new regulations, the highly compensated employee salary threshold has also increased, affecting how businesses classify their highest earners.
In a departure from past policy, the DOL has instituted automatic updates to the salary threshold for white-collar exemptions. This means that the threshold for both standard and highly compensated employees will periodically adjust based on wage growth. Businesses will need to stay updated on these changes to remain compliant and ensure that their workforce remains correctly classified.
How Do The White-Collar Changes Affect Employers?
The updated white-collar exemption rules mean that businesses may need to reassess and potentially reclassify employees who now fall below the new salary threshold. For companies, this could mean increased overtime costs, as more employees become nonexempt. Some employees may raise salaries for employees close to the threshold to maintain their exempt status.
Employers must also ensure they have federal labor law posters that reflect the latest salary thresholds and exemption criteria, ensuring employees are aware of their rights.
What Steps Should Employers Take To Stay Compliant?
The DOL’s updated rules on white-collar exemptions represent an important shift that affects businesses and employees alike. Companies should adapt to these changes by taking these steps:
- Audit employee classifications: Review all salaried employees to determine whether any now fall below the new exemption threshold and need to be reclassified as nonexempt.
- Update payroll practices: With the salary threshold automatically updating, implementing processes to review pay practices regularly will help maintain compliance without surprises.
- Keep posters current: Partner with a poster compliance service to receive regular updates and new posters whenever federal or state regulations change.
- Communicate with employees: Be transparent with employees regarding any changes in their exempt or nonexempt status. Explain how this impacts their pay and overtime eligibility.
Keep reading our blog to stay up-to-date on the latest changes in wage and hour laws and labor law poster requirements.
