DOL Finalizes Updated Overtime Rule – What Employers Need to Know
On April 23, 2024, the Department of Labor announced final updated rules that expand overtime protections by increasing the salary thresholds to exempt a salaried executive, administrative, or professional employee from federal overtime pay requirements. The new rule will expand eligibility for overtime pay for millions of U.S. workers.
The final rule follows the DOL’s “extensive engagement with employers, workers, unions and other stakeholders.” The DOL issued its proposed rule in September 2023, to which it received over 33,000 comments.
What are the overtime rules?
Under the Fair Labor Standards Act (FLSA), employers must pay employees for hours worked over 40 per workweek, unless employees qualify for specific exemptions. Exemptions may apply to employees classified as bona fide executives and administrative or professional employees. The employees must pass a salary threshold and job duties test to qualify for these exemptions. While the job duties test remains the same, the final rule revised the salary thresholds.
What are the new salary thresholds?
Effective July 1, 2024, the salary threshold will increase to $43,888 (from $35,568). On January 1, 2025, the threshold will increase to $58,656. Beginning July 1, 2027, salary thresholds will be updated every three years based on current wage data.
The rule also adjusts the threshold for “highly compensated employees” to $132,964 on July 1, 2024, and $151,164 on January 1, 2025.
Who is covered by the updated rule?
The overtime exemption applies to workers who are employed as bona fide executive, administrative, professional, and outside sales employees, as well as some computer employees. As mentioned above, the new rule also impacts highly compensated employees, but they have a different salary threshold.
In a press call, Jessica Looman, administrator of the DOL’s Wage and Hour Division, said the July 1st increase will affect approximately one million workers, and the 2025 increase will affect approximately three million workers.
How should employers prepare for the July 1 effective date of the new rule?
Even though the new rule will likely receive pushback and legal challenges, employers should audit positions that are affected by the increases to the salary threshold test. Employers should review whether employees classified as exempt still qualify for the exemptions mentioned above. Employers must decide whether the change in salary threshold warrants increasing employees’ salaries to qualify for the exemptions or whether they should convert the employee to a nonexempt status. Employers must do this while keeping in mind that nonexempt employees are eligible for overtime wages. Employers should consider the impact of converting exempt employees to nonexempt status on employee morale, time-tracking policies, payroll systems, and compensation schedules.
If you have questions about the updated overtime rule or other labor and employment matter, do not hesitate to reach out to the Employment & Executive Compensation Group at Levenfeld Pearlstein.
Additionally, we will host a free a webinar on the new Chicago Paid Leave Ordinance on Thursday, May 2, 2024, from 11:00 am – 12:00 pm CDT. To register, click here.