Federal Regulators Make Changes to Overtime Rules
DOL Increases Salary Thresholds Making Millions More Workers Eligible for Overtime Pay
The U.S. Department of Labor (DOL) issued a new rule regarding the salary threshold for determining whether employees are exempt from federal overtime pay requirements. The threshold is slated to jump 65% from its current level by 2025 and is expected to make four million additional workers eligible for overtime pay.
While this regulation could be changed by court challenges or through the political process, here’s what you need to know regarding the overtime rules as it currently is with these changes.
New Overtime Thresholds
The new rule focuses on the salary level test and will increase the threshold in two steps for weekly and annual pay:
Weekly
Starting on July 1, 2024, most salaried workers who earn less than $844 per week will be eligible for overtime. On January 1, 2025, the threshold increases to $1,128 per week.
Annual
The rule increases the minimum salary threshold to $43,888 on July 1, 2024, and then to $58,656 on January 1, 2025.
What about Highly Compensated Employees (HCEs)?
The rule also increases the total compensation requirement for highly compensated employees (HCEs). HCEs are subject to a more relaxed duties test than employees earning less. They need only “customarily and regularly” perform at least one of the duties of an exempt executive, administrative or professional employee, as opposed to primarily performing such duties.
Typically, this applies to HCEs who perform office or non-manual work and earn total compensation (including bonuses, commissions and certain benefits) of at least $107,432 per year. The compensation threshold will move up to $132,964 per year on July 1, and to $151,164 on January 1, 2025.
The new rule is expected to make four million additional workers eligible for overtime pay.
Will there be thresholds adjustments after 2025?
Yes. The final rule also includes a mechanism to update the salary thresholds every three years. Updates will reflect current earnings data from the most recent available four quarters from the U.S. Bureau of Labor Statistics. There are options for the DOL to delay, even temporarily, a scheduled update when unforeseen economic or other conditions occur. But they will have to publish any upcoming updates 150 days in advance.
Action Steps for Businesses
Review Salaries
Analyze employee salaries to identify those who fall below the new threshold and may now be eligible for overtime. Or employers might want to increase their salaries to retain their exempt status while proactively using this as an opportunity to keep key talent on good terms.
Classification Review
Ensure proper classification of exempt vs. non-exempt employees based on job duties, not just salary. If some employees are reclassified to nonexempt, employers may have training or education expenses for those new roles.
Budgeting and Scheduling
Factor in potential increased overtime costs when budgeting and consider adjusting schedules to minimize overtime if necessary.
Communication
Clearly communicate the new overtime rules and employee eligibility to your workforce. You may have new timekeeping requirements or restrictions on off-the-clock work.
What’s Next?
There is always potential for judicial intervention or changes to these rules through political processes especially with a Presidential election occurring in a few months (along with 33 U.S. Senate seats and all 435 seats in the House). As changes occur, we will update you with the latest information.