FLSA Overtime Exemption Rules Updated: What Small Business Owners Need to Know 

Uncover the top questions about FLSA overtime exemptions. Learn the tests, avoid misclassifications, and protect your business from costly mistakes.

Female business owner answering questions about FLSA overtime exemptions to her employee.
Author By the Roll Editorial Team on May 06, 2024
Reading Time 4 min read

The U.S. department of Labor (DOL) has issued significant updates to the Fair Labor Standards Act (FLSA) regulations that determine which employees are exempt from overtime pay requirements. These changes will go into effect on July 1, 2024, and employers must understand their implications.

What are the primary tests to determine if an employee is exempt from overtime?

To qualify as exempt under the FLSA, an employee generally must meet three primary tests:

  • Salary Basis Test: Employees must be paid a predetermined and fixed salary that is not subject to reduction based on the quantity or quality of work performed.
  • Salary Level Test: Employee must be paid a minimum weekly salary of at least $684 per week (equivalent to $35,568 per year)
  • Duties Test: Employee must primarily perform duties that fall into one of the exempt categories or executive, administrative or professional work.

The chart below shows current and future pay levels to meet FLSA overtime and minimum wage exemptions:


Effective Date Standard Salary Level Test Amounts Alternative Test Amounts (Highly Compensate Employee Total Annual Compensation Threshold)
Before July 1, 2024 $684 per week (equivalent to $35,568 per year) $107,432 per year, including at least $684 per week paid on a salary or fee basis
Beginning July 1, 2024 $844 per week (equivalent to $43,888 per year) $132,964 per year, including at least $844 per week paid on a salary or fee basis
Beginning January 1, 2025 $1,128 per week (equivalent to $58,656 per year) $151,164 per year, including at least $1,128 per week paid on a salary or fee basis
Beginning July 1, 2027, and every 3 years thereafter To be determined by DOL using earnings data published by the U.S. Bureau of Labor Statistics. To be determined by DOL using earnings data published by the U.S. Bureau of Labor Statistics.


What specific duties qualify for the executive, administrative and professional exemptions?

  • Executive Exemption: This exemption includes employees primary duties consisting of managing the business or a department of subdivision of the company. They must customarily and regularly direct the work for at least two or more full-time employees (or equivalents) and have the authority to hire, fire or influence those personnel decisions.
  • Administrative Exemption: This exemption applies to employees whose primary duties are performing office or non-manual work directly related to the management or general business operations of the employer or employers' customers. They must also exercise discretion and independent judgment on matters of significance.
  • Professional Exemption: This exemption includes two main categories:
    • Learned Professionals: Performing work requiring advanced knowledge in science or learning. This knowledge is usually acquired through prolonged intellectual instruction. Examples include lawyers, doctors, teachers, and accountants.
    • Creative Professional: Performing work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor. Examples include musicians, actors, and writers.

Are there any common misconceptions about the FLSA overtime exemptions?


Yes, several misconceptions exist. Here are a few:

  • Job Title Alone: Just because an employee has a managerial title, it doesn't automatically qualify them for exemption. It's the actual duties they perform that matter.
  • Highly Compensated Employees: Being highly paid does not guarantee overtime exemption. The salary basis, salary level and duties tests must all be met.
  • Non-profit Organizations: FLSA regulations apply to most for-profit and non-profit employers, so non-profits must comply with overtime exemption rules.

What are the potential consequences of misclassifying employees?


Misclassification of employees can lead to severe consequences for businesses, including:

  • Back pay: Employers may be required to pay back overtime wages for several years.
  • Penalties and fines: The department of Labor may impose penalties and fines for violations.
  • Legal costs: Businesses could face costly lawsuits from misclassified employees.

Can bonuses and incentive payments be used to satisfy the salary level test?


Yes, according to the final rule, up to ten percent of the salary amounts in the chart can be satisfied by paying non-discretionary bonuses, incentives and commission payments that are paid annually or more frequently. However, suppose by the end of the year, the amount paid to the employee is less than 52 times the required salary amount. In that case, the employer must make one final payment sufficient to meet the necessary level by the next pay period after the end of the year.


What are the next steps for small business owners and employers to consider?


Take a moment to delve into the additional information and Frequently Asked Questions provided by the DOL. This will equip you with the necessary knowledge to navigate the upcoming changes in labor laws.

  • Review the salary amounts paid to employees exempt from the FLSA overtime and minimum wage requirements before July 1, 2024.
  • Determine if the compensation employees receive is sufficient to meet the upcoming increase to the salary level test or alternative test amounts.
  • If the amounts are not sufficient, you will need to determine whether to increase the employee's salary sufficiently to meet the required amount or begin treating the employee as an FLSA non-exempt employee entitled to FLSA overtime and minimum wage protections.
  • Several states have their own tests for exempt status, which are typically harder to satisfy. You should apply state and federal tests to determine an employee's status under federal and state law.
  • If you reclassify employees as non-exempt, ensure managers are prepared to manage overtime costs and understand what hours are considered hours worked. For example, under certain circumstances, travel time and time spent performing pre-liminary or post-liminary activities can be deemed compensable work time.
  • Remember that an employee's "regular rate of pay" for FLSA overtime calculation purposes is the average hourly rate calculated by dividing the total pay for employment (except the statutory exclusions) by the total number of hours worked. Total compensation includes commissions and non-discretionary bonuses.
  • If employees are reclassified as non-exempt, their pay frequency might also need to be changed depending on state law.

Remember, timely and clear communication is key. Be prepared to communicate any changes promptly and comprehensively to your employees, ensuring they are well informed and ready for the upcoming changes in labor laws.


Key takeaways

  • The Department of Labor (DOL) releases revised overtime exemption rules effective July 1, 2024.
  • The rules primarily change the minimum salary levels that determine if an employee is exempt from overtime pay.
  • Employers must review employee salaries and job duties to ensure they’re prepared for the changes.


Business Basics • Small Business
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