New Overtime Rule Begins on July 1, 2024

The U.S. Department of Labor’s (DOL) new final rule significantly raises the minimum salary-level threshold for white-collar overtime exemptions beginning on July 1, 2024, and will increase it again on January 1, 2025.

Under this final rule, starting on July 1, 2024, employees who make less than $844 per week or $43,888 annualized could very likely be eligible for overtime pay after working 40 hours in a week.  On January 1, 2025 the salary threshold increases to $1,128 per week or $58,656 annualized.

On May 22, 2024 more than a dozen business groups and a company filed a lawsuit seeking to block this DOL final rule.  A similar challenge happened in 2016 when the DOL attempted to increase the salary threshold. That challenge lowered the initial salary amount.

We recommend that you review the current salaries of your exempt employees and be prepared if the DOL final rule stays.  Employers can either provide salary increases to their exempt employees or reclassify those exempt employees as eligible for overtime.

Exemption from paying overtime can be one of the trickiest rules imposed by the Fair Labor Standard Act (FLSA).  In order to be exempt from overtime, an employee must meet two FLSA’s tests:

The Wages Test

This sets a minimum salary threshold for overtime exemption.  Currently, employees making below the current threshold – $684/week or $35,568 annualized – must be paid overtime in any week they work more than 40 hours.  It does not matter what their job duties are.

The new FLSA ruling discussed above increases the salary threshold.

The Duties Test

If an employee earns more than the salary threshold per year, their overtime eligibility is then determined by looking at the employee’s job responsibilities.

There are seven classes of potentially exempt workers:

  • Executive Employees
  • Administrative Employees
  • Learned Professionals
  • Creative Professionals
  • Computer Employees
  • Outside Sales Employees
  • Highly Compensated Employees

Each of these classes have their own specific set of rules.  Go to dol.gov/agencies/whd/fact-sheets/17a-overtime for more information on each of these exemptions.

If both of these tests are not met, employers will have to pay employees who work more than 40 hours in a week overtime pay of at least 1.5 times the employee’s regular rate of pay.

Also increasing under the DOL’s final rule is the salary threshold for highly compensated employees who do not meet one of the bona fide duties test classifications.  Currently, an employee who makes up to $107,432 a year must be paid overtime if the employee does not meet the Duties Test.

The following chart shows the dates and amounts of salary threshold levels that will be phased in:

 

 

Effective Date

 

Salary Per Week – must be at least

 

Salary Annualized – must be at least

Highly Compensated Annual Salary – must be at least

Current

$684

$35,568

$107,432

July 1, 2024

$844

$43,888

$132,964

January 1, 2025

$1,128

$58,656

$151,164

 

Overtime must be calculated based on each work week within a payroll period if the employer pays something other than weekly.

If you have questions, please contact Linda Pappajohn, SCG’s Director of HR Consulting Services, at 302-224-5103.

Santora CPA Group
Call us 302-737-6200