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overtime exemptions

Increased Salary Threshold for Overtime Exemptions

(Pay and Benefits > Overtime)

In a significant move affecting most U.S. employers, the U.S. Department of Labor (DOL) has issued a final rule increasing the minimum salary level for white-collar exemptions from overtime pay requirements. The rule restricts who will qualify for the executive, administrative and professional exemptions, and the highly compensated employee exemption, and will affect millions of administrative and managerial positions that are currently exempt from overtime pay. The rule is set to take effect on July 1, 2024, if no successful legal actions block enforcement prior to that date.

Who is Affected

Employers and employees subject to the Fair Labor Standards Act (FLSA). The FLSA covers most private employers and employees in the U.S., unless specifically exempted.

Effective Date and Lawsuits

The rule is set to take effect on July 1, 2024, prompting swift reactions from businesses and industry groups. Some have expressed concerns about the potential financial burden of increased payroll costs, while others argue that the change is long overdue and necessary for supporting working families. On May 22, 2024, more than a dozen business groups filed a lawsuit seeking to block the U.S. Department of Labor’s (DOL) new final rule. The court has set a June 24 hearing on the plaintiffs’ motion for an injunction preventing the DOL from implementing the rule.

Background

The Fair Labor Standards Act (FLSA) governs various labor standards, including minimum wage, overtime pay, child labor, and employer recordkeeping requirements. The FLSA contains various exemptions from overtime pay requirements, including “white-collar” exemptions for executive, professional and administrative employees, if they meet specific criteria related to their job duties and salary level. The minimum salary threshold for the white-collar exemptions has remained unchanged for many years, leading to concerns about outdated regulations and wage stagnation. A higher salary threshold for exempt employees will lead to more employees being eligible for overtime (higher wages), especially lower- or mid-level management and administrative employees.

The Rule

The 2024 DOL final rule addresses this issue by raising the minimum salary level for white-collar exemptions. Under the new regulation, employees must earn a minimum salary of $844 per week, equivalent to $43,888 per year to qualify for exemption from overtime pay, up from the previous threshold of $684/week equal to $35,568/year. The minimum salary will increase again to $1,128 per week, the equivalent of a $58,656 annual salary, by January 1, 2025.

  • The rule will also raise the annual compensation for the Highly Compensated Employee (HCE) exemption to $132,964 per year on July 1, 2024, and then to $151,164 by January 1, 2025.
  • The rule further requires that the DOL increase the earnings thresholds every three years based on up-to-date wage data.
  • These adjustments aim to ensure that more workers receive fair compensation for their time and effort, particularly those in managerial or administrative roles.
  • State overtime laws must meet the federal minimum salary threshold, but they may set higher thresholds. Currently, only Alaska, California, Colorado, Maine, New York and Washington set a higher salary threshold than the federal threshold.
  • Other federal exemptions from FLSA overtime requirements remain unchanged.
What Employers Should Do

Assuming the rule takes effect on the intended effective date, employers should be prepared for the change with the following actions:

Determine Affected Employees/Job Classifications:  Run a report of all exempt employees including their salary so you have a list of which exempt employees will be affected under the new salary threshold.

If you’re not sure if your employees are correctly classified as exempt or non-exempt, we can help with a simple survey and classification report emailed to you. Email or give us a call: amckeel@mckeelgroup.com or 314.725.0425

For the affected employees:  Determine if listed exempt job positions require significant overtime.

If not, no adjustment may be necessary. Losing the exemption won’t result in significant increased costs if a position is now subject to payment for overtime. The job position can simply be re-classified as non-exempt and affected employees notified that they will now be receiving overtime pay for overtime hours.

If a job position does require significant overtime, determine whether to
1)   increase the salary of employees in the position to the minimum threshold to maintain the exemption, or
2)   re-classify the position as non-exempt and adjust the job duties for the position to avoid significant overtime. Job descriptions for the affected positions will need to be updated.

If an individual employee (or employees) within a job position perform significant overtime, a similar decision can be made to increase their salary to meet the minimum salary threshold, or re-classify them as non-exempt and pay them overtime, adjusting their job duties to avoid significant overtime costs, as possible.

Communication and Training: Clear communication with employees about the changes and any adjustments to their compensation or job duties is crucial. Additionally, providing training to managers and HR personnel on compliance with the new regulations can help mitigate risks and ensure a smooth transition.

Monitoring Legal Developments: Given the possible effect of legal challenges, stay informed about any updates or changes that may affect enforcement or effective date of the new rule. We will provide updates as new developments unfold.

Additional information:

DOL Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the FLSA

Contact us if you have other questions regarding your obligations or exemptions from overtime payments to employees or need help complying with the new overtime exemption requirements.  amckeel@mckeelgroup.com or 314.725.0425

Picture of Allison McKeel

Allison McKeel

I'm an employment lawyer who has worked with hundreds of startup and established businesses and love to help dynamic companies get started and grow. Follow my blog for the latest legal news--designed to keep you legally compliant and up-to-date on innovative workplace practices.

This article is for general information only and is not intended as legal advice. Seek the advice of qualified legal counsel for specific legal questions. 

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