Department of Labor Announces New Overtime Rules

by Ashley N. Trotto, Esq. with Summer Associate Austin Gergen

On April 23, 2024, after reviewing over 33,000 comments on the proposed rule to increase overtime protections for employees, the Department of Labor announced a final rule that increases the salary threshold for employees to be exempt from overtime pay requirements. The final rule took effect on July 1, 2024, and raised the salary threshold for workers from $35,568 ($684 per week) to $43,888 ($844 per week). The salary threshold will rise again on January 1, 2025, to $58,656 ($1,128 per week) resulting in a 65% increase in the salary threshold from the threshold set in 2020.

Additionally, the “highly compensated employee” exemption, which allows businesses to exempt employees who make more than a certain amount annually from the FLSA requirements, is also being increased. The previous salary threshold was $107,432 per year, including at least $684 per week paid on a salary or fee basis, but effective July 1, that rate is now $132,964 per year in compensation with at least $1,128 per week paid on a salary or fee basis. On January 1, 2025, the threshold will again increase to $151,164 per year with at least $1,128 per week paid on a salary or fee basis. In total, the HCE exemption will experience a 40% increase over the previous rule by January 1, 2025.

These changes are expected to affect one million American workers as a result of the July increase, and an additional three million employees as a result of the January threshold increases. Looking towards the future, the new rule also establishes that every 3 years, beginning on January 1, 2027, these rates will increase based on then current wage data. New rates will be published at least 150 days prior to taking effect, and the rule allows the Department of Labor to temporarily delay a scheduled increase when “unforeseen economic or other conditions warrant.”

In response to these increases, employers should audit the exempt status and salaries for their employees to ensure they are compliant with the new rules. Employers have the option to pay overtime to employees who are no longer exempt; limit the hours of non-exempt salaried workers; reclassify salaried employees to hourly employees; or increase the salaries of their employees to keep employees exempt.