U.S. Department of Labor Adopts Final Rule on Overtime

On April 23, 2024, the U.S. Department of Labor (“DOL”) adopted its Final Rule on Overtime that expands overtime pay eligibility under federal law. The Final Rule raises the salary thresholds necessary under the Fair Labor Standards Act (“FLSA”) to exempt executive, administrative and professional employees, as well as highly-compensated employees, from overtime.

What do the new changes mean?

To be exempt from the minimum wage and overtime provisions under the FLSA, an employee:

• must be salaried

• meet a minimum salary threshold

• pass the job duties tests for one or more of the “white-collar” exemptions The DOL also provides an alternative test for certain highly compensated employees. The Final Rule changes the minimum salary thresholds for these tests — it does not alter the job duties tests.

What are the new salary thresholds?

• Beginning July 1, 2024, for executive, administrative and professional exemptions, the salary threshold will increase from $35,568 per year to $43,888 per year – or from $684.00 per week to $844.00 per week.

• Beginning January 1, 2025, for executive, administrative and professional exemptions, the salary threshold will be increased from $43,888 per year to $58,656 per year – or from $844.00 per week to $1,128.00 per week.

• Beginning July 1, 2024, for highly compensated employees, the salary threshold will be increased from $107,432 per year to $132,964 per year.

• Beginning January 1, 2025, for highly compensated employees, the salary threshold will be increased from $132,964 per year to $151,164 per year.

• Employers will be allowed to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the standard salary level, provided that such payments are paid on an annual or more frequent basis.

What should employers do to prepare for the changes?

Employers should take a number of immediate steps:

• Identify any current exempt employees classified as executive, administrative or professional and not meeting the new salary threshold of $43,888 per year, and any current exempt employees classified as highly-compensated but not meeting the new salary threshold of $107,432 per year.

• In each case determine whether the employee’s salary will be raised to the new threshold or if the employee will be reclassified as non-exempt, while considering that thresholds will increase again next year.

• Determine whether new or additional training on non-exempt time-keeping will be required for employees and supervisors.

• Regardless of salary level, review job descriptions to make sure they accurately describe the actual duties of the job and ensure each position is properly classified as exempt or non-exempt. Even though the Final Rule does not change the job duties tests, this is an excellent time to ensure proper classification.

Will employers have to do this again?

Starting July 1, 2027, the salary thresholds will be updated again, and every three years thereafter based on current wage data.

Does this affect state overtime laws?

The Final Rule does not affect state law, although many states routinely follow the FLSA. Where the FLSA and state law conflict, employers must follow that law which provides the greatest benefit to employees.