U.S. Department of Labor Enacts New Overtime Rule
On April 23, the U.S. Department of Labor released its final rule significantly increasing the salary threshold used to determine whether a worker is exempt from overtime pay. The new overtime rule’s initial threshold increase is slated to go into effect July 1, at which time the threshold will increase from $684 per week ($35,568 per year) to $844 per week ($43,888 per year). A second increase to $1,128 per week ($58,656 per year) will take effect on January 1, 2025. Beginning on July 1, 2027, and every three years thereafter, there will be an automatic increase based on inflation.
In addition, the new rule allows for some types of variable compensation to account for up to 10% of the minimum salary amount, and a true-up after December 31 if the variable compensation, combined with the fixed salary, did not account for enough wages to meet the minimum salary amount.
Those are not the only changes. In addition to the general salary exemption thresholds, the rule will raise the threshold for classification as a highly compensated employees from $107,432 to $132,964 in July 2024, and then to $151,164 in January 2025. This change will also be subject to automatic increases thereafter.
By way of background, the Fair Labor Standards Act has several provisions that exempt workers from overtime pay requirements. One of the major carveouts requires an employee to be salaried, make more than a certain amount per year, and work in a “bona fide executive, administrative, or professional capacity.” This requires employees to be paid at least the minimum salary set forth in the regulations, and have exempt duties as their primary duties.
Practical Takeaways and Considerations.
The Biden administration estimates the rule will benefit roughly 4 million workers by the time the final salary cap is implemented in January 2025. We anticipate that the rule will be challenged in court, just like the DOL’s prior overtime rule was in 2016. Nonetheless, now is a good time for employers to review exempt positions, determine which may be impacted by this new rule, and prepare for implementation.
We will be sure to monitor the status of the overtime rule in the likely event of litigation and keep you updated. Please reach out to your favorite Miller Johnson employment attorney if you have any questions.