Federal Overtime Exempt Salary Basis Increase

June 20, 2024   Print PDF

By Maricarmen C. Perez-Vargas | Related Practice: Employment

With salary basis updates at both the federal and state levels, the time is right for multi-state employers to review employee exemption classifications.

The Department of Labor (“DOL”) will increase the salary threshold for exemptions to federal overtime pay requirements on July 1, 2024 through its new Overtime Exemption Rule. The threshold will increase from $35,568 annually to $43,888 annually on July 1, 2024, and then $58,656 annually beginning January 1, 2025. The threshold for “highly compensated employees” is also increasing. Thresholds will be updated every three years based on current wage data.

Under the Federal Labor Standards Act (“FLSA”) employees are exempt from federal overtime wage requirements if they satisfy a “duties” test (most commonly that their work meets the criteria to be considered exempt under executive, administrative, or professional exceptions) and if they earn a minimum annual salary. The new rule focuses on the second part of this test.

Pending lawsuits originating in Texas currently threaten the implementation of the rule by July, and courts may enjoin the rule before it can take effect pending a review of the rule’s legality. A hearing on June 24, 2024 may lend some clarity to the lay of the land in the immediate future. There is precedent for a delay: enforcement of the DOL’s attempt to raise the salary threshold in 2016 was blocked by a preliminary injunction ordered by a federal court in Texas.

For employers with employees only in Washington State, the rule will have little effect, as Washington State’s exemption threshold is currently well above the federal level at $67,724.80 annually for employers of all sizes. Starting January 1, 2025, this threshold will increase to $69,555.20 for employers with 1-50 employees, and to $78,249.60 for employers with 51 or more employees. Washington’s thresholds will continue to increase annually until January 1, 2028.

Employers with exempt employees outside of Washington who rely on the federal salary basis should keep an eye on the federal rule and its implementation. Barring intervention by the court, salary changes may be needed to retain the exempt status of their employees. As always, employers are wise to plan ahead for the upcoming salary threshold increases for Washington-based employees.

The Employment Group at Stokes Lawrence, P.S. can answer any questions about employee classification and review employee exemption classifications.

This document is intended to provide you with general information regarding the increase in the federal overtime exemption salary basis. The contents of this document are not intended to provide specific legal advice.