The U.S. Department of Labor (DOL) announced on April 23, 2024 a significant expansion to overtime eligibility via the Final Rule: Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees. The Final Rule increases the minimum salary level applicable to the overtime exemptions for executive, administrative and professional (EAP) employees for federal law purposes under the Fair Labor Standards Act (FLSA), but does not change the salary basis or duties components of exempt status.
The Final Rule largely tracks the changes announced in the DOL’s Notice of Proposed Rulemaking (NPRM) on September 8, 2023. This post focuses on the impact of the Final Rule to the education sector. For a more comprehensive analysis of the Final Rule as applicable to employers in all sectors, including assessment of the potential for legal challenges to the Final Rule, see the Alert Duane Morris published.
Effective July 1, 2024, the minimum salary for exempt status for EAP employees will rise from $35,568/year ($684/week) to $43,888/year ($844/week). On January 1, 2025, the minimum salary for exempt status for EAP employees will rise again, to $58,656/year ($1,128/week). On July 1, 2027 and every three years thereafter, the DOL will raise the salary level for exempt status, pegging it to the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region (currently the South).
The Final Rule raises the salary threshold for the “highly-compensated employee” (HCE) exemption too. The minimum salary to satisfy the exemption will increase from $107,432/year to $132,964/year on July 1, 2024 and rise again, to $151,164/year, as of January 1, 2025. On the same triennial schedule noted above, the DOL will raise the salary threshold for the HCE exemption to keep pace with earnings data.
The DOL affirms in the Preamble that the Final Rule preserves the “teacher exemption.” Therefore, for federal law purposes, covered schools, colleges and universities may continue to classify as exempt employees whose primary duty is teaching, without a need to raise their salaries, as there is no minimum salary requirement for the “teacher exemption.” Acknowledging that teachers strongly advocated for the agency to impose a minimum salary threshold for teachers, the DOL explained in the Preamble that “The Department did not solicit comment about the exemption criteria for teachers in the NPRM and, as many commenters on this issue recognized, addressing this issue would require a separate rulemaking.”
In recent years, the DOL has issued guidance documents addressing the scope of the “teacher exemption.” In a 2018 DOL Opinion Letter, the agency recognized that athletic coaches working for a public school may qualify for the “teacher exemption” where their job duties are primarily educational as opposed to clerical or administrative. In a 2019 Opinion Letter, the DOL opined that the specific job duties of nutritional outreach instructors working for a public university made them eligible for the “teacher exemption.” Both guidance documents are non-binding, but appear to reflect the agency’s continuing interpretation of the FLSA.
In other positive news for education employers, the DOL makes clear in the Preamble to the Final Rule that the “academic administrative exemption” continues to apply. As to this category of exempt status, education institutions may continue to use the relaxed salary requirements for classifying as exempt employees whose primary duty is performing administrative functions directly related to academic instruction or training. Generally, so long as such employees receive a salary at or above the salary paid to teachers in the same educational establishment and satisfy the “duties test” for the administrative exemption, they are not eligible for overtime pay for FLSA purposes. The Final Rule leaves intact existing FLSA regulations interpreting this exemption category to cover positions including superintendents, principals and academic counselors.
For the myriad positions in the education sector, employers may look to the generally applicable requirements of the other available exemptions, including executive, administrative, professional, outside sales and computer employee exemptions, to assess appropriate classification under the FLSA.
In the preamble to the Final Rule, the DOL acknowledged that multiple education industry associations opposed the NPRM, predicting negative budgetary effects on support services for students and other programs. The Final Rule no doubt requires education sector employers to make big decisions, soon.
Whether to increase the salary for a position to preserve exempt status or instead reclassify the position as non-exempt requires consideration of multiple factors, a key one being state law. As to exempt status, applicable state law may depart from the FLSA as to the available categories of exempt status, including those specific to education employers and as to the salary requirements for exempt status. As to nonexempt status, some state laws require employers to pay overtime in broader circumstances than the FLSA requires. For example, hours worked beyond 8 in a day trigger overtime pay in California, and hours worked beyond 12 in a day trigger overtime pay in Colorado.
Another factor to consider is employee retention. As the DOL acknowledges in the Preamble to the Final Rule, employers looking to retain employees whose salaries no longer meet the minimum standard for exempt status may pay nonexempt employees on a salary basis to preserve the benefit of earnings predictability, while also paying any required overtime.
In addition to the pay implications of the Final Rule for affected employees, employers need to think about hiring plans, staffing budgets, operational needs and employee relations.
Schools, colleges, universities and other education sector employers ought to use the brief window prior to July 1st to consider what changes may be necessary to ensure compliance with the Final Rule and minimize the hurdles to successful implementation of any changes.