The Federal Department of Labor has finalized a new overtime rule that will take effect July 1, 2024. This rule increases the earnings requirement for certain employees to be classified as exempt from being eligible to earn overtime. The rule also provides a mechanism for the earnings threshold to increase every three years.
- The first part of the rule applies to employees who fall under the administrative, executive, or professional category of exemption from overtime eligibility.
- Effective July 1, 2024, employees must earn a minimum of $844/week or $43,999/year to be exempt from earning overtime.
- Effective January 1, 2025, the threshold will increase again, to $1,128/week or $58,656/year.
- The next increase is expected to go into effect on January 1, 2028, and it will be determined using a formula set forth in the Department of Labor’s rulemaking.
- The job-duties criteria must also be satisfied for one or more of these exemption categories in order for the employee to be exempt from earning overtime.
- There is a second part to this rule that increases the compensation threshold for highly compensated employees to be exempted when they do not otherwise satisfy one of the exemptions discussed above.
- Effective July 1, 2024, the salary threshold for the exemption will increase to $844/week or $132,964/year.
- Effective January 1, 2025, the salary threshold for the exemption will increase to $1,128/week or $151,164/year.
- The next increase is expected to go into effect on January 1, 2028, and it will be determined using a formula set forth in the Department of Labor’s rulemaking.
- There is a job-duties test that must also be satisfied.
Steps to take now:
- Employers should review the compensation of all employees who are currently classified as exempt from overtime, to determine whether their compensation will continue to satisfy the earnings threshold for the exemption. If not, those employees will need to either be reclassified as non-exempt or given raises to bring them in line with the new threshold. The same exercise will need to be undertaken towards the end of 2024, in advance of the next earnings threshold increase.
- This is also a good time to review employees’ duties to verify that those who are classified as exempt continue to meet the duties test under the administrative, executive, professional, or highly compensated employee exemption. This review should be conducted with the assistance of counsel, as the application of the job-duties tests is not always straightforward.
- Employees who are currently classified as exempt should review their compensation and actual job duties and consider whether the exemption criteria are satisfied. Again, because the application of the job-duties tests is not always straightforward, this review should be conducted with the assistance of counsel.
This article contains general legal information that should not be relied on as legal advice. Counsel should be consulted regarding specific situations.
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