USDOL Issues Final Overtime Rule
As I wrote a few months ago, the United States Department of Labor (“USDOL”) was taking the necessary legal steps to modify federal overtime requirements by increasing the salary threshold needed to render employees exempt from the overtime requirements of the Fair Labor Standards Act (“FLSA”). On April 23, 2024, the USDOL released its long-awaited final rule raising the salary thresholds for overtime exemptions, meaning that employers will now need to pay overtime to a larger group of employees, unless employee salaries are adjusted to meet these new thresholds.
The new rule raises the salary threshold under which salaried employees are eligible for overtime in two stages. The threshold will increase to the equivalent of an annual salary of $43,888, or $844 a week, starting July 1,2024 and then to $58,656, or $1,128 a week, on January 1, 2025. (The current threshold is $35,568 a year, or $684 per week.) The salary threshold will then be updated every three years, starting July 1, 2027. Also increased was the exemption salary amount for those employees’ ineligible for overtime because they are high earner employees. The minimum threshold for the highly compensated employee exemption will increase significantly too, as follows: July 1, 2024: The annualized compensation threshold will increase from $107,432 to $132,964. January 1, 2025: The annualized salary threshold will increase again to $151,164.
It is also important for employers to remember that paying employees a certain salary does not alone make such employees exempt. Employees must also qualify for one of the exempt classifications under the FLSA (i.e. executive, administrative, professional, etc.), along with meeting the new salary thresholds to be deemed ineligible for overtime. Those exemption categories are unaffected by the recent change to the salary requirements.
Already there have been significant rumblings that these new salary rules will face legal challenges that could impact whether they ever are enforced, and we will keep you updated on any such efforts. In the meantime, employers will need to start preparing for life under the new rules if they ever do go into effect. Employers should at a minimum canvas their workforce and determine whether increasing employee salaries to the new overtime exemption rate is a justifiable step for your company and is commensurate with the duties performed by those employees. Or alternatively employers will need to come up with other strategies for minimizing overtime costs for your business by better controlling what overtime gets worked to reduce possible increased exposure to overtime payments. The time for taking such steps is now and your business should not wait until July to decide the best way to legally cope with these new overtime requirements.
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