Last week, the U.S. Department of Labor issued a final rule to update and revise various provisions of the regulations implementing the Fair Labor Standards Act (FLSA). The final rule increases the general salary level threshold for exempt employees from $684/week to $844/week (effective July 1, 2024) and then to $1,128/week (effective January 1, 2025), but there are important exceptions applicable to teachers and school administrators. School districts and independent schools should review their payroll practices and determine which employees will be impacted by these significant increases.
Background
The FLSA requires that most employees be paid a federal minimum wage and overtime at rate of one and one-half times their regular rate of pay for all hours worked in excess of forty hours in a workweek. However, the FLSA provides an exemption from minimum wage and overtime requirements for certain categories of employees, including those who work in a bona fide executive, administrative, or professional capacity. Generally, to qualify for such exemptions, employees must meet: (1) a duties test, and (2) a salary test (by being paid on a salary basis in an amount that meets or exceeds the threshold).
Changes for Exempt Employees Generally
The revised rule has the practical effect of expanding the number of employees who will be entitled to overtime pay because they will no longer qualify as exempt employees, unless their salaries are raised to meet the new thresholds. As an example, an exempt employee who makes $48,000 will remain exempt after July 1, 2024, because they will still make more than $844/week. The salary test then increases to $1,128/week in January 2025, which is approximately $58,000 per year. At that time, therefore, such formerly exempt employee will no longer qualify for the exemption, unless their salary level is raised or they meet the criteria for teachers or school administrators, as explained below.
Teachers and School Administrators Remain Exempt
Under federal law, certain professionals, such as teachers, must only meet the duties test to qualify for the exemption. Thus, teachers are exempt regardless of their salary if (1) their primary duty consists of “teaching, tutoring, instructing or lecturing in the activity of imparting knowledge” and (2) they are “employed and engaged in this activity as a teacher in an educational establishment by which the employee is employed.” Whether a teacher meets these tests requires a fact-specific analysis that takes into consideration the specific duties performed by the employee, not whether the employee holds the title of “teacher.”
School administrators are subject to a special rule, as well. If administrators perform “administrative functions directly related to academic instruction or training in an educational establishment or department thereof”, they remain exempt as long as they meet the salary thresholds described above or are paid a salary at least equal to the entrance salary for teachers in the educational establishment.
Next Steps
In light of the new rule, schools should carefully review their current classifications and employee pay. While there may be some school employees who will no longer be exempt from overtime requirements unless their salaries are increased to the new salary thresholds, teachers and school administrators meeting the tests described above will continue to be exempt. More information about the new rule can be found here.