What the New Overtime Rule Means for Workers.

Final Rule On Salary Threshold To Qualify For Overtime

One of the basic principles of the American workplace is that a hard day’s work deserves a fair day’s pay. A cornerstone of that promise is the Fair Labor Standards Act’s (FLSA) generally requires an employer to pay an employee time and a half for all hours worked in excess of 40 hours in one work week. The Department of Labor’s ruling requires employees who are employed in a bona fide executive, administrative, or professional capacity ("EAP" or "white-collar" exemption) are exempt from minimum wage and overtime protections.

Some workers are specifically exempt from the FLSA’s minimum wage and overtime protections, including bona fide executive, administrative or professional employees. This exemption, typically referred to as the “EAP” exemption, applies when:

1. An employee is paid a salary, 
2. The salary is not less than a minimum salary threshold amount, and
3. The employee primarily performs executive, administrative or professional duties.

Starting July 1, most salaried workers who earn less than $844 per week will become eligible for overtime pay under the final rule. And on Jan. 1, 2025, most salaried workers who make less than $1,128 per week will become eligible for overtime pay. As these changes occur, job duties will continue to determine overtime exemption status for most salaried employees.

Who will become eligible for overtime pay under the final rule? Currently most salaried workers earning less than $684/week. Starting July 1, 2024, most salaried workers earning less than $844/week. Starting Jan. 1, 2025, most salaried workers earning less than $1,128/week. Starting July 1, 2027, the eligibility thresholds will be updated every three years, based on current wage data. DOL.gov/OT

Employees who are paid a salary, earn above a higher total annual compensation level, and satisfy a minimal duties test fall within the exemption for highly compensated employees ("HCE"). The final rules also increases the annual total compensation for the HCE exemption from $107,432 to $151,164 in two stages:

1. On July 1, 2024, the HCE level will increase from $107,432 to $132,964 per year.
2. On January 1, 2025, the HCE level will increase to $151,164 per year. Starting July 1, 2027, these earnings thresholds will be updated every three years so they keep pace with changes in worker salaries, ensuring that employers can adapt more easily because they’ll know when salary updates will happen and how they’ll be calculated.

The final rule includes a mechanism for automatically updating these salary and compensation levels every three years based on then-current earnings data. The first automatic update will occur on July 1, 2027.

The final rule does not change the current rule which allows employers to use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the standard for special salary levels for the exemptions.

Although the final rule will likely face legal challenges, employers should consider adjusting compensation structures for exempt employees earning more than $35,564 per year but less than the new EAP exemption minimum of $58,656 per year. Additionally, employers may need to consider reclassifying employees who do not meet the new minimum salary thresholds.

What the New Overtime Rule Means for Workers | U.S. Department of Labor Blog (dol.gov)

Commentary by: Raylea Stelmach

Edited by:

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