Summer Is Almost Here - And So Is the U.S. Department of Labor’s New Rule for Overtime Exemption Thresholds

On April 23, 2024, the U.S. Department of Labor (DOL) issued a final rule raising salary thresholds for certain overtime exemptions under the Fair Labor Standards Act (FLSA). In essence, the rule raises the minimum salary threshold an employee must be paid to be exempt from overtime. This means that possibly millions of employees will no longer be exempt under the FLSA and will be entitled to receive overtime for all hours worked over 40 hours in one workweek.

The FLSA exempts some employees in specific categories from being entitled to overtime and is grouped based on the work the employee performs. These exemption categories are executive, administrative, professional, and highly compensated. To be exempt from overtime, employees must fit into one of these categories based on an examination of their job duties. However, examining an employee’s job duties is only half the test. The other half, the level of the employee’s salary, is an inquiry into whether or not the employee is paid at a certain level based on their inclusion in one of the exemption categories listed above. For example, if the employee’s job duties would place the employee into one of the exemption categories, and their salary is at or above the threshold for their exemption category, that particular employee is exempt from being entitled to overtime.

The new rule increases these salary thresholds for these exemption categories, allowing countless employees to receive overtime. The salary threshold for executive, administrative, and professional employees is currently $684 per week, which annualizes to $35,568 per year. The threshold for highly compensated employees is currently $107,432 per year. However, these requirements are under the FLSA only, and state or local laws may have different thresholds and/or qualifications for exemptions. The new rule institutes the following:

1. Beginning July 1, 2024, the final rule calls for an increase in the threshold for bona fide executive, administrative, and professional employees to $844 per week, which is $43,888 per year. The final rule will raise the annual compensation threshold for highly compensated employees to $132,964 per year.
2. Beginning January 1, 2025, the final rule will raise the threshold for bona fide executive, administrative, and professional employees to $1,128 per week, which annualizes to $58,656 per year. The final rule will raise the annual compensation threshold for highly compensated employees to $151,164 per year.
3. Beginning July 1, 2027, and every three years after, the salary thresholds will automatically update using the methodology in effect at the time of each update.

It’s crucial for employers to understand the implications of these new thresholds, which will take effect in a little over 30 days. Employers will need to increase their employees’ salaries for those included in one of the exempt categories or plan to pay employees for overtime hours. Wage and hour claims can be very expensive to litigate in court, so companies will be better off to complete an early audit of possible risk prior to the new rule taking effect on July 1. The team at Chartwell Law routinely conducts wage and hour audits and DOL investigations and is ready to help with your business needs.

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