THE U.S. DEPARTMENT OF LABOR’S NEW OVERTIME RULES ARE NOW IN EFFECT AND MAKE AN ESTIMATED 4.3 MILLION ADDITIONAL WORKERS ELIGIBLE FOR OVERTIME PAY
Overview of the Fair Labor Standards Act (FLSA) and Overtime Requirements
The Fair Labor Standards Act (“FLSA”) requires employers to pay an overtime premium of 1.5 times the regular rate of pay for all hours worked beyond 40 hours in a work week, unless an employee is exempt from coverage under the FLSA. Some workers are specifically exempt from the FLSA’s minimum wage and overtime protections, including bona fide executive, administrative or professional employees, as well as a category of employees referred to as “highly compensated employees.”.
EAP or White Collar Exemptions Explained
The executive, administrative or professional exemptions, typically referred to as the “EAP” or “white collar” exemptions, apply when:
- An employee is paid a salary,
- The salary is not less than a minimum salary threshold amount, and
- The employee primarily performs executive, administrative or professional duties.
New Overtime Rules Effective July 1, 2024
On April 23, 2024, the U.S. Department of Labor (DOL) announced new overtime rules that went into effect on July 1, 2024. The rules, which update the FLSA, increase the salary threshold necessary for an employee to be considered exempt under the EAP exemption, making millions of additional people eligible for overtime pay for the first time.
Updated Salary Thresholds for Exemption
Under the new rules, executive, administrative, and professional employees must earn at least $43,888 per year ($844 per week) to be exempt, up from $35,568 per year ($684 per week). This threshold increases to $58,656 per year ($1,128 per week) on January 1, 2025.
Highly Compensated Employee Exemption Updates
In addition, the new rules increase the minimum salary required to be considered exempt as a highly compensated employee. Now, highly compensated employees must earn at least $132,964 per year to be exempt, up from $107,432 per year. This threshold also increases to $151,164 per year on January 1, 2025. Under the rules, an employee must earn a minimum amount in salary each week and the remainder can be earned through other forms of compensation such as nondiscretionary bonuses or commissions.
Reduced Duties Test for Highly Compensated Employees
A reduced duties test applies if the employee’s salary meets or exceeds the highly compensated employee threshold.
Impact on Employers and Compliance Recommendations
The Department of Labor’s objective is to increase the number of workers eligible for overtime pay. According to the Department of Labor, the higher minimum salary threshold will make an estimated 4.3 million additional workers eligible for overtime pay under the FLSA. As a result, employers should review their pay practices for compliance with all criteria established for exempt status.
Contact Baird Quinn for Further Guidance
For further information, please feel free to contact Baird Quinn’s wage and hour lawyers for guidance.