By Lora J. Mizell

Overtime pay requirements are set to change this summer and businesses are well-advised to review payroll and HR records now to prepare. The result of the new rule, if it withstands pending court challenges, will be a significant number of workers newly eligible for overtime pay. The U.S. Department of Labor has released the final rule that increases the threshold salary used to determine whether a worker is eligible to be treated as exempt from overtime pay.  

To be exempt from overtime under federal law, employees must be paid at least the threshold amount and meet certain duties tests. If they earn less than the threshold amount, or do not meet the duties tests, their employer must pay them overtime (not less than 1 ½ times their regular hourly rate) for time worked in excess of 40 hours in a workweek. Meeting the salary threshold does not automatically make an employee exempt from overtime pay.  Other considerations, including the employee’s job duties, also come into play. Employees who are exempt under the rule, because of their rate of pay and the type of work they do, are not eligible for overtime pay for hours worked over a 40-hour workweek.  

Beginning on July 1, 2024, to qualify as an exempt executive, administrative, or professional employee, an employee must be compensated at a rate of at least $844 per week (or $43,888 per year).  Under the new rule then, workers who do not earn at least $844 per week would have to be paid overtime, even if classified as a manager or professional. The current salary threshold for these exemptions is $684 per week (or $35,568 per year).  

Then, beginning on January 1, 2025 under the new rule, this threshold increases to $1,128 per week (or $58,656 per year).

The annualized salary threshold for “highly compensated employees” will now increase from $107,432 to $151,164 (“highly compensated employees” have altered duties test requirements).

The Rule then provides that the Department of Labor will determine future updated amounts for all of the above exemptions beginning July 1, 2027 and every three (3) years thereafter.  

The Department of Labor estimates that in year 1, approximately 1 million employees who earn at least $684 per week but less than $844 per week will be impacted by the initial increase, and that approximately 3 million employees who earn at least $844 per week but less than the new standard salary level of $1,128 per week will be impacted by the increase slated for later this year.

Employers are encouraged to become familiar with the new salary thresholds and evaluate whether any current employees may need to be reclassified based on the new threshold. Employers may also need to weigh the cost of raising employee salaries above the new threshold against the cost of reclassifying employees as nonexempt and paying overtime. To help with that analysis or for more information on the new rule, please contact one of Martin Pringle’s employment lawyers.