US DOL Issues Final Overtime Rule

On April 24, 2024, the United States Department of Labor (DOL) announced its final rule on overtime, entitled “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees”. This rule updates and revises the DOL’s regulations that implement the Fair Labor Standards Act (FLSA) exemption of certain kinds of “white-collar” employees from the Act’s minimum wage and overtime pay requirements. Specifically, the final rule raises the salary thresholds that are part of the test for exemption and establishes a mechanism for future salary increases.

Unless the new rule is stopped in court, and legal challenges are expected, there will be an initial update to the minimum salary level for executive, administrative, and professional employees to $844 per week on July 1, 2024. The minimum salary level will increase to $1,128 per week on January 1, 2025.

Starting July 1, 2027, these minimum salary thresholds for exempt status will be updated every three (3) years, to keep pace with inflation and changes in worker pay. DOL believes this will help employers adapt more easily because they’ll know when salary updates will happen and how they’ll be calculated.

To be exempt from overtime as an executive/managerial, professional or administrative employee, an employee must be paid at least a certain minimum salary level. Under the 2024 final rule, the minimum salary level will change as follows:

  • On July 1, 2024, the minimum salary level will increase from the current $684 per week (equivalent to $35,568/year) to $844 per week (equivalent to $43,888/year).
  • On January 1, 2025, the minimum salary level will increase to $1,128 per week (equivalent to $58,656/ year).
  • On July 1, 2027, and every three (3) years thereafter, the minimum salary level for the white collar exemptions will update by applying the most recent four quarters of data. The Department will publish a notice announcing the updated salary level amount at least 150 days before the update takes effect.

The minimum salary level test does not apply to outside sales employees, teachers, and employees practicing law or medicine. The salary level test also does not apply to business owners who own at least a bona fide 20-percent equity interest in their enterprise and are actively engaged in its management. Exempt computer employees may be paid a salary of at least the standard salary level per week, or on an hourly basis of at least $27.63/hour.

Employers may use certain bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the minimum salary levels, with certain requirements. There are other bonuses that cannot be used to satisfy the minimum salary level.

Employers should note that the FLSA provides minimum standards under federal law and does not preempt states from establishing more protective standards. Some states have established more restrictive requirements, including higher minimum pay thresholds and more demanding job duties requirements.

It is estimated by DOL that at least four (4) million white collar employees currently classified as exempt from overtime will no longer be exempt after these higher salary requirements take effect, beginning on July 1, 2024. This portends big changes for many employers.

Wimberly Lawson attorneys will be happy to assist employers navigate these new requirements and determine which employees can remain exempt and which will need to be reclassified to non-exempt (and overtime-eligible) status.