Department of Labor Issues Final Rule Raising the Minimum Salary Requirements for Executive, Administrative, Professional, and “Highly Compensated Employees” for Overtime Exemptions under the FLSA
Kathryn Bennett, Law Clerk
Effective July 1, 2024, the U.S. Department of Labor (“DOL”) will increase the minimum salary threshold necessary for exemptions to the Fair Labor Standards Act’s (“FLSA’s”) overtime requirements for executive, administrative, and professional employees—including the salary thresholds for “highly-compensated employees” under the FLSA. As related to highly compensated employees, the DOL’s anticipated increases present challenges for Colorado employers who may find that at least some of their highly compensated employees will no longer qualify as exempt under federal law—notwithstanding compliance with Colorado’s own highly compensated employee thresholds.
The DOL’s Progressive Increases to Minimum Salary Requirements for Purposes of Overtime Exemptions
On April 23, 2024, the Department of Labor announced its Final Rule (“Rule”) setting forth new requirements for employers to classify employees as either exempt or non-exempt from federal overtime laws under the FLSA. The Rule raises the minimum salary needed in order for executive, administrative, and professional employees (“EAP Employees”) to be exempt from federal overtime requirements, which may impact the overtime-exempt status of millions of workers across the country.
Currently, if an employee otherwise qualifies as an executive, administrative, or professional employee under the DOL’s job duties tests, the employee must earn at least $684/week in salary (or $35,568 annually) in order to be exempt from federal overtime laws. The Final Rule increases the required salary threshold to $844/week ($43,888 annually). The minimum salary threshold will increase again on January 1, 2025 to $1,128/week ($58,656 annually). Starting July 1, 2027, the minimum salary threshold will again be adjusted to reflect earnings data among salaried employees, and will be adjusted every three years thereafter.
The Rule also increases the minimum salary requirements for employees classified as highly compensated employees (“HCEs”) which, under DOL regulations, may be exempt from overtime if they customarily and regularly perform at least one of the job duties under the executive, administrative, and professional job duties tests and earn a certain heightened salary. On and after July 1, the HCE salary threshold will increase from $107,432/year to $132,964/year. On January 1, 2025, the HCE salary threshold will again increase to $151,164/year and on and after July 1, 2027, the HCE salary threshold will increase every three years to reflect the current earnings data of salaried employees.
The Rule and Colorado’s Minimum Salary Requirements for HCEs
In addition to the FLSA’s salary basis test for overtime exemptions, Colorado employers are also subject to overtime pay requirements in the Colorado Overtime Minimum Pay Standards Order (7 CCR 1103-14, or the “COMPS Order”). Currently, Colorado EAP employees are exempt from overtime if they earn $1,057.69/week, or $55,000 annually, which is more than what the federal Rule will require as of July 1, 2024. Thus, because Colorado currently has a higher salary threshold, EAP employees who currently satisfy the federal/state EAP job duties tests (which are substantively similar) and Colorado’s minimum salary requirements will continue to be exempt from overtime after July 1, 2024, but of course that may change for certain employees once federal and state minimum thresholds increase again in 2025.
However, for 2024, Colorado’s minimum threshold for HCE’s is $123,750 annually, which is less than the minimum HCE salary threshold which will take effect on July 1, 2024 under federal law ($132,964/year). Thus, for example, while an HCE may be properly exempt from overtime under federal and Colorado law if she currently makes $125,000 annually, after July 1, 2024, she will be considered non-exempt under federal overtime laws (which supersede Colorado laws in the event of a conflict), and her employer will be required to either 1) increase her salary to $132,964/year in order to maintain the employee’s exempt status, or; 2) begin paying overtime. Failure to do either will result in a wage and hour violation under the FLSA and may subject the employer to steep penalties and damages.
Employer Considerations
The DOL’s upcoming increases to the minimum salary thresholds for EAP employees and highly compensated employees are a salient reminder to employers that they must be mindful of both federal and state laws governing overtime exemptions, since entitlement to overtime is always presumed and employers bear the burden of establishing that an exemption to overtime applies. Colorado employers in particular should ensure that, to the extent they classify certain salaried employees as exempt, such classifications will continue to be valid in the coming months—especially given that the federal minimum salary threshold for HCE’s will exceed Colorado’s minimum HCE salary threshold (at least from July 1, 2024 to January 1, 2025).
For further guidance on the Final Rule and the changes coming to overtime pay requirements, please reach out to Campbell Litigation, P.C. with your questions and concerns.