FLSA Salary Exemption Thresholds to Increase on July 1, 2024

The Fair Labor Standards Act (FLSA) is undergoing significant revisions concerning salary exemptions for executive, administrative, and professional employees. The U.S. Department of Labor (DOL) has finalized a new rule, effective from July 1, 2024, which raises the salary threshold for exempt employees under these categories.

In review, the FLSA regulates payment of minimum and overtime wages, ensuring fair compensation for employees across various industries in the United States. Under the FLSA, certain employees may qualify for exemption from minimum wage and overtime pay requirements under the executive, administrative, or professional classifications. These exemptions, commonly denoted as the “white collar” exemptions, are contingent upon a series of tests evaluating both salary and job duties.

To qualify for the exemption, the employee first must be paid on a “salaried” basis. The salary basis test mandates that employees receive a predetermined, fixed salary immune to reductions stemming from variations in work quality or quantity, guaranteeing a minimum level of compensation for any week involving work performance. In addition, the salary must exceed a minimum threshold.

The new DOL rule increases the threshold salary level previously set at $684 per week. For executive, administrative, and professional employees, the salary threshold increases to $844 per week effective July 1, 2024, translating to an annual salary of $43,888. The threshold then is to be raised to $1,128 per week or $58,656 annually, commencing January 1, 2025. The threshold for highly compensated employees similarly increases from $107,432 to $132,964. Furthermore, the introduction of periodic adjustments is slated to occur every three years, starting from July 1, 2027.

Salary based compensation is not the only criteria for the overtime exemption under the FLSA. Employees also must satisfy the “job duties” test, which delineates several categories of potentially exempt employees. For the executive exemption, the employee’s primary duty must entail managing the enterprise or a recognized department, involving supervision of at least two full-time employees and possessing the responsibility to hire or fire personnel. Similarly, the administrative exemption necessitates primary duties encompassing office or non-manual work directly related to business operations, coupled with discretion and independent judgment on significant matters. Finally, the professional exemption applies to roles demanding advanced knowledge in specialized fields, typically acquired through advanced education.

Compliance with these new standards requires employers to reassess their payroll structures. Crucially, job titles alone do not confer exempt status; rather, exemption eligibility hinges upon the alignment of an employee’s specific job duties and salary with the Department of Labor’s regulatory standards.

Virginia’s Return to Federal Overtime Standards

Virginia’s journey into overtime regulation took an interesting turn with the passing of the Virginia Overtime Wage Act (VOWA) in March 2021. However, amidst widespread confusion and concerns from employers, the state has decided to realign its overtime obligations and exemptions with the federal Fair Labor Standards Act (FLSA) beginning July 2022.

The 2022 VOWA amendments largely return the state to the overtime standards that were in place prior to the enactment of the VOWA in 2021. By realigning with the FLSA, employers (and judges) once again can rely on years of federal regulations, DOL guidance, and governing case law to determine their overtime obligations to employees.

While the recent amendments largely align Virginia’s overtime obligations with the FLSA, some significant changes should be noted:

Private Right of Action: The new amendments preserve an employees’ private right of action under VOWA, granting them access to state courts for individual or collective-action claims for unpaid wages and overtime.

Damages and Penalties: Similar to the FLSA, VOWA also allows for heightened damages and penalties for overtime violations. These provisions include automatic liquidated damages equal to the amount of unpaid wages, pre-judgment interest at 8% per year, and civil penalties of $1,000 for each violation, with the possibility of treble damages for “knowing” violations. These enhanced damages could incentivize employees to pursue claims in state courts.

Statute of Limitations: Prior to the 2022 amendments, VOWA had established a three-year statute of limitations for all violations, regardless of whether they were willful. With the changes, the FLSA’s two-year statute of limitations for non-willful violations will be reinstated. However, the VOWA’s imposition of double damages and possible treble damages for knowing violations remains intact.

Virginia’s return to federal overtime standards brings predictability to employers who were grappling with the complexities of the VOWA. By aligning with the FLSA, employers can once again rely on well-established federal regulations and case law to navigate overtime obligations. In any event, the swings of this legislative battle should be a signal for Virginia employers to review their overtime policies and procedures to ensure compliance with the amended laws.

Are Commissioned Employees Entitled to Overtime?

The answer depends on their line or work and their pay structure. FLSA regulations do provide an overtime exemption for certain employees of retail and service establishments who are paid on a commission basis. Retail and service establishments are defined as establishments that have a recognized retail concept and where 75% of sales are not goods for resale. Factors relevant to the “retail concept” might include whether the business sells goods or services to the general public or whether the business participates in the manufacturing process.

To qualify for the exemption under Section 7(i):

1. the employee must be employed by a retail or service establishment;

2. the employee’s regular rate of pay must be at least one and one-half times the applicable minimum wage; and

3. more than half the employee’s total earnings in a representative period must consist of commissions.

The representative period cannot be less than 1 month, or more than one year.  If all of these these elements are not satisfied, the employee would remain entitled to overtime pay.  Because the employer must verify that the regular rate of pay exceeds 1.5x the minimum wage, the employer still needs to track total hours worked during each pay period.

Prior to 2020, the U.S. Department of Labor published lists of businesses that they considered to be retail or non-retail.  The new rule withdraws their arbitrary reliance on the lists, allowing more industries to argue for the exemption.