May 23rd, 2024
U.S. Department of Labor’s Expansion of Overtime Eligibility Goes Into Effect July 1
Posted in: Employment Law Tagged: Darla J. McClure, Dustin M. Dorsino
UPDATE: Federal Court Strikes Down DOL’s Salary Threshold Increases for Overtime Exemptions
The U.S. Department of Labor (DOL) announced a final rule on April 23, 2024, that will increase the salary thresholds for the “white collar” (WC) and “highly compensated employee” (HCE) exemptions to the Fair Labor Standards Act (FLSA) overtime eligibility requirements. The Final Rule takes effect on July 1, 2024.
As a general matter, a WC employee is classified as “exempt” under the FLSA, and is not entitled to overtime pay for hours worked above 40 hours in a workweek, if the employee:
- Is paid a predetermined and fixed salary,
- Is paid at least a specified weekly salary level; and
- Primarily performs executive, administrative or professional duties.
Prior to July 1, 2024, the weekly salary threshold for determining overtime eligibility was $684, meaning if an employee was paid a fixed salary of at least $35,568 per year (and primarily performed executive, administrative or professional duties), that employee would be ineligible for overtime pay. Starting on July 1, 2024, the weekly salary threshold will increase to $844, which is equivalent to an annual salary of $43,888.
The Final Rule will also increase the salary threshold for the HCE exemption under the FLSA. An employee is considered a HCE and ineligible for overtime pay if the employee:
- Is paid a salary,
- Earns more than a certain amount of annual compensation (Annual Compensation); and
- Satisfies a minimal duties test.
Starting on July 1, 2024, the Annual Compensation threshold for the HCE exemption will increase from $107,432 to $132,964.
The Final Rule includes automatic future increases to these salary thresholds as well, which are illustrated in the table below. The DOL will provide at least 150 days’ advance notice of the scheduled threshold increases.
| Date | WC Weekly Salary | HCE Annual Compensation |
|---|---|---|
| Prior to July 1, 2024 | $648 ($35,568 annually) | $107,432 (of this amount, at least $35,568 per year must be paid on a salary or fee basis) |
| July 1, 2024 | $844 ($43,888 annually) | $132,964 (of this amount, at least $43,888 per year must be paid on a salary or fee basis) |
| January 1, 2025 | $1,128 ($58,656 annually) | $151,164 (of this amount, at least $58,656 per year must be paid on a salary or fee basis) |
| July 1, 2027 and every 3 years thereafter | TBD based on available data | TBD based on available data |
Notwithstanding the potential legal challenges the Final Rule will likely face, employers should start preparing now by reviewing their exempt employees’ salaries and deciding whether to:
- Increase such employees’ salaries to maintain their exempt status; or
- Reclassify such employees as non-exempt and pay them overtime.
If you have any questions about the Final Rule or how best to prepare for its potential implications, please contact an attorney in our employment law department.
