When it comes to complying with the federal Fair Labor Standards Act (FLSA), employers must be well-versed in the concept of overtime exemptions for certain employees—commonly referred to as “white-collar” exemptions. These exemptions apply to executive, administrative, and professional roles, as well as certain computer and outside sales employees.
Qualifying for these exemptions involves passing a two-part test: the employee must earn a minimum salary, and they must perform specific duties related to their exemption category. Failure to meet both of these standards means an employee must be paid overtime regardless of their title or, in most cases, their salary. Currently, the federal minimum salary threshold stands at $844 per week (equivalent to $43,888 annually), though states such as California and New York have stricter requirements with higher thresholds.
Recently, in Mayfield v. US Department of Labor, the US Court of Appeals for the Fifth Circuit addressed whether the Department of Labor (DOL) has the authority to set a salary floor for these exemptions. The plaintiffs argued that exemptions should focus solely on job duties, but the court sided with the DOL, affirming its authority to mandate both salary and duties tests for determining exempt status. An in-depth discussion on this decision is available here. However, the court did not address the specific amount of the salary threshold, leaving room for future challenges on that front.
Starting July 1, 2024, the minimum salary required for the EAP exemptions will increase to $844 per week, and it is scheduled to rise again on January 1, 2025, to $1,128 per week. In California, the 2024 minimum exempt salary will be $66,560 annually, while in New York, it ranges from $58,458 to $62,400 per year, depending on the region, with further increases planned through 2026. Details on California and New York’s thresholds can be found here and here.
Employers must ensure compliance with both federal and state laws to avoid liability. To this end, the Mayfield decision underscores the need for proper employee classification. Misclassification can result in substantial penalties, including back pay for unpaid overtime, making compliance particularly crucial in industries like retail and hospitality where lower-salaried managers could fall below the new thresholds.
To avoid misclassification and ensure compliance, employers should:
- Audit employee classifications: Regularly review employee roles to ensure they meet both the salary and duties tests under federal and state laws.
- Monitor state-specific rules: Stay updated with stricter state laws such as in California and New York.
- Plan for salary increases: Ensure compliance with the salary increases that took effect on July 1, 2024, and prepare for those that will take effect on January 1, 2025, and beyond.
- Ensure accurate time tracking: Accurate timekeeping systems are essential for managing overtime for employees whose salaries do not meet the increasing thresholds.
Employers must be proactive by regularly reviewing classifications and preparing for upcoming changes. For the full article, see Bloomberg Law’s coverage here.