On April 23rd, 2024, the U.S. Department of Labor (DOL) and the Biden Administration announced a final rule that expands overtime protections. Specifically, the final rule ensures overtime pay for most low-paid salaried workers who earn less than $844 a week (or $43,888 a year). Additionally, the final rule includes an automatic increase within six months of its effective date. By the DOL’s estimates, this proposed rule would benefit millions of employees. In September 2023, the DOL proposed increasing the overtime exemption thresholds. Correspondingly, this final rule is based on public comments from that proposal.
Current Salary Threshold and Overtime Exemption Under the FLSA
As the nation’s primary wage law and one of the major employment laws employers must follow, the Fair Labor Standards Act (FLSA) establishes minimum wage and overtime protections for non-exempt part-time and full-time employees. However, under section 13(a)(1) of the FLSA, employees paid above the FLSA’s current salary basis are generally exempt from overtime provisions. To qualify for overtime exemption, employees must be paid on a salary basis at not less than $684 per week. These exempt employees must also perform at least one of the duties of an executive, administrative, or professional employee. These duties include:
- company or departmental management;
- regularly directing work;
- hiring, firing, promoting, or suggesting such employment actions;
- exercising discretion and independent judgment in matters of significance;
- performing work that requires advanced knowledge in science or learning acquired through specialized academic training; and
- using originality, talent, imagination, or invention in a recognized artistic or creative field.
Final Rule on Overtime Protections
Explicitly, the DOL’s final rule increases the salary threshold for overtime exemption under the FLSA to $844 per week ($43,888 per year). This means that salaried employees who earn less than $43,888 a year would be eligible for overtime pay. Indeed, the DOL seeks to extend overtime protections to millions of low-paid salaried employees. According to the DOL, many of these low-paid salaried employees work alongside hourly employees and do the same tasks. Like their hourly counterparts, they often work over 40 hours in a workweek. However, they are not paid an overtime rate for those hours. For this reason, the DOL believes the new rule would rectify this problem. In addition, the final rule seeks to accomplish the following:
- Give more workers pay or valuable time back with their families.
- Provide regular updates to ensure predictability. The rule establishes regular updates to the salary thresholds every three years to reflect changes in earnings. This protects against future erosion of overtime protections so they do not become less effective over time.
Presently, the rule’s effective date is July 1st, 2024. On January 1st, 2025, the overtime threshold will increase to $1,128 per week ($58,656 annually).
Finally, the overtime threshold for highly compensated employees (HCEs) will also change. Beginning on July 1st, 2024, the annual compensation level for HCEs to be exempt from overtime pay will increase from $107,432 to $132,964. On January 1st, 2025, that level will rise to $151,164.
In conclusion, future updates to the salary and compensation levels will occur every three years. Those updates will apply updated wage data to the regulations. The next three-year update will take place on July 1st, 2027. To learn more, employers may read the DOL’s list of frequently asked questions on the final rule.