Starting in July 2024, the Department of Labor’s (DOL) new overtime rule will take effect, effecting millions of new workers across the US. The new rule means employers need to consider their employees’ salary and/or classification to comply with the new salary threshold.
Effective July 1, 2024, the new DOL rule increases the salary threshold to $43,888 annually ($844 per week), up from $35,568 ($684 per week). The new overtime rule also changes the annual compensation requirement for highly compensated employees from $107,432 to $132,964 annually.
What you need to know:
The Fair Labor Standards Act (FLSA) is a federal law that establishes overtime pay eligibility, alongside minimum wage, recordkeeping requirements, and child labor laws. Employers must follow the FLSA to determine whether employees are exempt from overtime. Overtime is time and a half pay for every hour worked over 40 in a workweek. The FLSA salary threshold is the minimum salary employers must pay employees for them to be exempt from overtime wages. The Department of Labor administers and enforces the FLSA. As a result, the DOL determines the salary threshold.
Exempt Status Eligibility:
Employees are only exempt from overtime pay requirements if they meet all three of the following:
- The employee receives a salary, AND
- The salary is not less than the FLSA salary threshold ($43,888 annually beginning July 1, 2024), AND
- The employee has executive, administrative, or professional job duties:
- Professional exemption: Primary duties involve consistent exercise of discretion and judgment requiring an advanced degree or their work involves invention and originality.
- Executive exemption: Primary duty involves managing or supervising two or more full-time employees or their equivalent with authority to hire and fire or whose recommendations regarding hiring and firing are given particular weight.
- Administrative exemption: Primary duties involve non-manual work that helps in managing the business, requiring the use of discretion and independent judgment.
- There are additional exemptions, including for Outside Sales, Computer employees, and Highly Compensated Employees (HCEs). More details on the duties for employees who fall under those exemptions can be found on the DOL Fact Sheet #17.
Considerations Around the New OT Rule:
- Review each employee’s classification.
- Consider unintended ways reclassification could affect your business.
- Revisit policies on use of company equipment and hours worked.
- Provide advance notice and proper training.
Future Salary Threshold Increases:
- Beginning January 1, 2025, the FLSA salary threshold will increase to $58,656 annually ($1,128 per week).
- The annual compensation requirement for highly compensated employees will also increase to $151,164 on January 1, 2025.
- On July 1, 2027, the threshold will increase again, and there will be another increase every three years.
Sabeza HR understands the difficulties created for employers by the new overtime rule. We are here to help. CONTACT US
Sources: US Department of Labor, Fisher Phillips
