Department of Labor issues rule expanding overtime eligibility

By David Dubberly
Maynard Nexsen PC

On April 23, 2024, the U.S. Department of Labor (DOL) published its final rule raising the salary thresholds for overtime pay exemptions.  The new rule will drive up payroll costs across many industries.  In fact, the DOL estimates it will expand overtime eligibility to 4-million additional workers—assuming it survives expected court challenges.

Under the final rule:

• The minimum salary level for employees covered by the executive, administrative, and professional (a/k/a “white collar”) exemptions will increase from the current $35,568 per year to $43,888 on July 1, 2024, and then to $58,656 on Jan. 1, 2025—an increase of more than $23,000 over the current level.
• The minimum salary level for the “highly compensated employee” exemption will rise from $107,432 per year currently to $132,964 on July 1, 2024, and then to $151,164 on Jan. 1, 2025—up almost $44,000 over the present level.
• These salary amounts will be automatically updated by the DOL every three years to keep pace with inflation. The first update will occur on July 1, 2027.

The DOL has issued two helpful resources about the final rule:

• Chart of all salary thresholds for EAP employees, and
• Frequently asked questions.

As a reminder, the Fair Labor Standards Act (FLSA) requires most employees to be paid overtime at 1.5 times their regular rate of pay for all hours worked in a work week in excess of 40 hours.  However, the FLSA provides an exemption from overtime pay for employees who:

• Primarily perform executive, administrative, or professional duties;
• Are paid a salary on a predetermined and fixed basis that does not change based on the quality or quantity of their work; and
• Are paid a minimum amount set out in DOL regulations.

The FLSA also exempts highly compensated employees:

• Who regularly perform executive, administrative, or professional duties;
• Whose primary duties include office or non-manual work; and
• Who earn a minimum amount set out in DOL regulations.

The new rule will likely be challenged in court on the basis that it violates the FLSA because it raises the minimum salaries too drastically.  But employers still must consider now how the new rule will impact their operations and plan on having to comply by July 1, 2024.  Many employers may have to make preparations to transition current exempt employees who do not meet the new salary minimums to non-exempt status—or give them a raise to the new salary minimums so they can maintain exempt status.

We will monitor developments on the overtime rule and provide updates as warranted.

David Dubberly is an employment and labor lawyer with Maynard Nexsen PC.