Submitted by Skip Lilly
The U.S. Department of Labor recently introduced an update to the Overtime Provisions of the Fair Labor Standards Act (FLSA). These changes are scheduled to go into effect Monday, July 1, 2024. Here is a link to the Department of Labor stating the rule: https://www.dol.gov/newsroom/releases/whd/whd20240423-0.
This change updates the overtime exemption requirements for executive, administrative, and professional employees. The update primarily impacts those employees who are currently classified as “exempt” and, therefore, are not entitled to receive overtime compensation.
The most promoted change in the overtime regulations is the increase in the minimum salary required for overtime exemption, guaranteeing overtime protection for employees whose base earnings are less than $844/week ($43,888/year).
The wage level is only part of the test to verify an exemption for an employee. The DOL also requires the employee to meet certain criteria depending on the exemption being claimed, whether it is Executive, Administrative, or Professional. If you have questions regarding the other criteria, consult a Human Resources professional to assist you in making that determination.
Additionally, these changes include an increase in the minimum salary for the Highly Compensated Employee (HCE) exemption from $107,432/year to $132,964/year. Of that amount, at least $844 per week or $43,888 per year must be paid on a salary or fee basis.
Employers will be allowed to use nondiscretionary bonuses and incentive payments, paid at least annually, to satisfy up to 10% of the standard salary level.
This update will have a second stage which goes into effect Wednesday, January 1, 2025. The minimum salary for an exempt employee will change to $1,128/week or $58,656/year. The HCE exemption will change to $151,164.
A final component of this rule change is the inclusion of an automatic update to the minimum salary level. Beginning July 1, 2027, and occurring every three (3) years thereafter, the DOL will implement a methodology to determine if and how much the minimum salary should increase. At this time, the methodology has not been determined. In an explanation of the new rule, the DOL gives background of the new regulation at https://www.dol.gov/agencies/whd/overtime/rulemaking.
As with any change of this nature, there may be legal challenges and you should keep checking back for any challenges to this new rule.
Actions such as reclassifying the exemption status of current employees or reevaluating employee salaries may be necessary. This change provides a great opportunity to review the status of all exempt employees to verify they meet the duties tests to be considered exempt.
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