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U.S. Department of Labor's Overtime Final Rule Set to Go into Effect on July 1
The U.S. Department of Labor (DOL) is raising the salary thresholds used to determine whether employees are eligible for overtime pay, which will increase the number of employees who qualify for overtime. In April, DOL published a final rule revising and updating overtime protections under the Fair Labor Standards Act for certain executive, administrative and professional (EAP) employees. With this Overtime Final Rule, DOL is setting new compensation thresholds for the standard salary level for the EAP exemption from receiving overtime pay. On July 1, 2024, the salary threshold – the level at which an employee no longer qualifies for overtime – increases from $684 per week/$35,568 per year to $844 per week/$43,888 per year. Starting January 1, 2025, the threshold increases again, this time to $1,128 per week/$58,656 per year. Starting July 1, 2027, the threshold will automatically be adjusted every three years to account for inflation. According to DOL, the new standard salary level, when combined with the standard duties test, should better define which workers are employed in a bona fide EAP capacity. DOL estimates that, in the first year of the increase, approximately 1 million employees who earn at least $684 per week but less than $844 will be impacted.
The Overtime Final Rule also increases the earnings threshold for the highly compensated employee (HCE) exemption to overtime pay, which should reduce or eliminate the need to conduct a minimal duties test for HCEs to determine whether they qualify for overtime. On July 1, 2024, the threshold for the HCE exemption increases to $132,964 per year from the previous $107,432. Starting January 1, 2025, the threshold increases again to $151,164 per year, with a requirement that the individual worker is paid a minimum of $1,128 per week on a salary or fee basis. Similar to the EAP exemption, the HCE exemption threshold will automatically be adjusted every three years starting July 1, 2027.
Lastly, the Overtime Final Rule includes a new mechanism to update the standard salary level and HCE total annual compensation threshold every 3 years to ensure their effectiveness as tests for exemption.
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1. “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees (Final Rule).” Federal Register 89:82 (April 26, 2024) p. 32842
2. Ibid, p. 32843
3. Ibid
The Overtime Final Rule also increases the earnings threshold for the highly compensated employee (HCE) exemption to overtime pay, which should reduce or eliminate the need to conduct a minimal duties test for HCEs to determine whether they qualify for overtime. On July 1, 2024, the threshold for the HCE exemption increases to $132,964 per year from the previous $107,432. Starting January 1, 2025, the threshold increases again to $151,164 per year, with a requirement that the individual worker is paid a minimum of $1,128 per week on a salary or fee basis. Similar to the EAP exemption, the HCE exemption threshold will automatically be adjusted every three years starting July 1, 2027.
Lastly, the Overtime Final Rule includes a new mechanism to update the standard salary level and HCE total annual compensation threshold every 3 years to ensure their effectiveness as tests for exemption.
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1. “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees (Final Rule).” Federal Register 89:82 (April 26, 2024) p. 32842
2. Ibid, p. 32843
3. Ibid
