Department of Labor Issues Final Rule Updating Minimum Monetary Threshold for Overtime Pay under the Fair Labor Standards Act

On April 23, 2024, the Department of Labor (“DOL”) issued a final rule regarding the minimum pay threshold that employees must meet in order to be exempt from being paid overtime. This rule goes into effect on July 1, 2024. The rule increases the standard salary level that defines and limits which salaried workers are entitled to overtime under the Fair Labor Standards Act (“FLSA”).

The rule provides that most salaried workers who earn less than $844 per week will be eligible for overtime pay; conversely, employees salaried (as opposed to paid hourly) at an amount greater than $844 per week may be exempt from overtime. As of January 1, 2025, most salaried workers who make less than $1,128 per week become eligible for overtime pay. 

The rule also increases the total annual compensation requirement for highly compensated employees, which are employees who are NOT entitled to overtime pay under the FLSA if certain requirements are met. That threshold will increase from $107,432 per year to $132,964 per year on July 1, and then rise to $151,164 per year on January 1, 2025. 

Additionally, there will be an automatic updating of these thresholds every three years. These updates will begin on July 1, 2027. 

Employers have various options when responding to these updated thresholds. They can 1) increase the salary of the employee to the new salary level to retain their exempt status; 2) pay an overtime premium of 1.5x the employee’s regular rate of pay for overtime hours worked; 3) reduce or eliminate overtime hours; 4) reduce the amount of pay allocated to an employee’s base salary (as long as the employee still earns the applicable hourly minimum wage) to offset new overtime pay; or 5) a combination of these responses. 

Note that certain employees may be exempt from minimum wage and overtime protections of the FLSA if they fall within certain exemptions. Employees must meet all requirements of the exemption tests to be exempt from the coverage of the FLSA overtime rules.

While there may be litigation over these new monetary requirements and their alignment with the FLSA, employers should be aware and prepare for any changes in the paying of overtime on July 1, 2024. Misclassifications can create liability for an employer, including the payment of back wages, unpaid overtime, and further monetary penalties. If you have questions regarding overtime exemptions or need review of your policies to ensure their compliance with federal rules, contact Lance Ziebell at lziebell@lavellelaw.com or MaryAllison Mahacek at mmahacek@lavellelaw.com to set up a consultation.