Complete Story
04/30/2024
New Federal Overtime Rule is Here
Source: Fisher Phillips, April 23, 2024
Millions of additional workers will soon be eligible for overtime pay thanks to the Labor Department’s new salary threshold for certain exempt employees – which raises the rate higher than initially anticipated. Employers will need to act quickly to ensure their pay practices align with this significant change. Specifically, the U.S. Department of Labor (DOL) announced today that the salary threshold for the so-called “white-collar” exemptions will rise from $35K to about $44K on July 1 and will jump to nearly $59k at the start of 2025 – which means your workers will need to earn at least this new threshold to even be considered exempt from OT pay under the white-collar exemptions. The Department says this change will impact about 4 million workers, and it could prompt big changes to your compensation plans. While we expect to see legal challenges, you can’t count on a court halting the rule before the effective dates, so you should start planning right away. What are your top 10 considerations ahead of the effective date?
First a Quick Refresher
Under the federal Fair Labor Standards Act (FLSA), employees generally must be paid an overtime premium of 1.5 times their regular rate of pay for all hours worked beyond 40 in a workweek — unless they fall under an exemption.
In recent years, the DOL’s new rules changing the exempt salary threshold have become known as “federal overtime rules” — but you should note that they do not actually change current overtime laws or implement new ones. Rather, the DOL’s objective is to increase the number of employees eligible for overtime. To accomplish this, the DOL has revised regulations to raise the minimum salary that an employee must receive to be eligible for a white-collar exemption.
Employers don’t have much time to prepare for the new increases that will take effect in two phases – the first phase on July 1 and the second phase on January 1, 2025. While the first phase appears to help employers by temporarily using a lower salary threshold, this is likely to complicate your planning – so you’ll want to start preparing immediately. Read on for the 10 key steps you can take now.
1. Get Ready for Big Changes
Currently, the salary threshold for exempt employees is $684 a week ($35,568 annualized) under the administrative, executive, and professional exemptions — which are collectively known as the “white-collar” exemptions. The DOL’s new rule raises the rate first to $844 a week ($43,888 annualized), then to $1,128 (or $58,656 a year). These significant increases will require some planning if you have exempt employees who earn less than the finalized amounts.
In addition to raising the salary threshold, the rule makes the following key changes:
- The salary threshold will be automatically updated every three years starting on July 1, 2027.
- The threshold for the “highly compensated employee" (HCE) exemption will rise, first to $132,964 on July 1, then to $151,164 on January 1, 2025 – which is also a bigger increase than initially proposed and is a significant increase from the current $107,432. The HCE threshold will also be updated every three years.
2. Review Your Pay Practices for Compliance
Don’t forget that the white-collar exemptions have more requirements than just the salary threshold. To qualify for these exemptions, employees must meet three criteria:
- Be paid on a salary basis;
- Be paid at least the designated minimum weekly salary; and
- Perform certain duties.
Now is a good time to review your exempt jobs for compliance will all criteria – not just the salary threshold. We discuss the duties requirements more below.
