‘Tis the summer of changes in employment law! Last month our blog featured the new federal ban on non-compete agreements, set to go into effect in September. This month, we’re discussing a few updates in the federal overtime rules, the largest of which is a series of increases in the threshold salary requirements for an employee to be exempt from receiving overtime for over 40 hours worked. The first salary increase went into effect July 1, 2024.
The U.S. Department of Labor’s final rule (read it here) updates and revises the regulations issued under the Fair Labor Standards Act (FLSA) that implement exemptions from minimum wage and overtime pay requirements for employees. Note that an individual state’s labor department can set higher salary thresholds (as well as minimum wage and full time hour requirements) so be sure to check employee salaries are compliant with your state’s laws as well.
Overtime regulations govern who is eligible to earn additional pay if they work more than 40 hours in a given work week. An employee who is not exempt from earning overtime and who works more than 40 hours a week will be entitled to at least one and a half times their standard rate of pay for their 41st hour that week and beyond. So, for an hourly employee, the rate is pretty straightforward. If the employee typically makes $10 an hour before taxes, the employee will earn $15 before taxes for any overtime.
Employees who qualify as “exempt” are not required to receive overtime pay. There are two types of compensation levels for this exemption – the “standard salary level” and the “highly compensated employee” level. The differences between the two are explained below. Under the new rule, on July 1, these salary thresholds increased to $844 per week ($43,888 per year) for standard salary-exempt employees and $132,964 per year for highly compensated employees, and these rates will increase again in January 2025 (see the chart below for specifics).
Whether or not an exemption applies under standard salary level, three factors must be satisfied for an employer to claim that an employee is exempt: 1, they are paid on a salary basis at a predetermined, fixed rate not subject to reductions for work quality; 2, that salary must meet the minimum amount set by law (see minimums below); and 3, the employee’s job duties must primarily involve work associated with executive, administrative, professional, outside sales, or computer employees. Employees who fall under the highly compensated employee threshold (HCE) exemption must “customarily and regularly” perform such types of duties (so it doesn’t have to be the main part of their work, but a regular part of it).
After 2024, the Department of Labor will automatically update these salary thresholds every three years based on the economic conditions and “current methodologies” used to set salary levels starting in 2027.
See the salary updates on the table from the Department of Labor below:
DATE | STANDARD SALARY LEVEL | HIGHLY COMPENSATED EMPLOYEE TOTAL ANNUAL COMPENSATION THRESHOLD |
Before July 1, 2024 | $684 per week (equivalent to $35,568 per year) | $107,432 per year, including at least $684 per week paid on a salary or fee basis. |
July 1, 2024 | $844 per week (equivalent to $43,888 per year) | $132,964 per year, including at least $844 per week paid on a salary or fee basis. |
January 1, 2025 | $1,128 per week (equivalent to $58,656 per year) | $151,164 per year, including at least $1,128 per week paid on a salary or fee basis. |
July 1, 2027, and every 3 years thereafter | To be determined by applying to available data the methodology used to set the salary level in effect at the time of the update. | To be determined by applying to available data the methodology used to set the salary level in effect at the time of the update. |
The Department of Labor’s small entity compliance guide discusses the types of executive, administrative, professional, outside sales, or computer duties in more detail and provides many examples of jobs that would fall under them. (Read more background about overtime in our blog on the topic, just know that the pay rates have since changed.)
Some other helpful blogs and resources:
DISCLAIMER: This blog post is meant for informational purposes only and does not constitute specific legal advice or create an attorney-client relationship. Readers should discuss their specific situation with an attorney.
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