The Biden-Harris Administration has finalized a rule to increase income thresholds for exclusion from overtime eligibility for executive, administrative, and professional workers. The concept of “overtime” – i.e., time-and-a-half for hours worked over forty (40) in a work week – was first established by the federal Fair Labor Standards Act (FLSA). The FLSA provides “exemptions” for employees in executive, administrative, and professional occupations who are paid on a salary, as opposed to hourly, basis if the salary is at or above the level established by the U.S. Department of Labor.
As of July 1, 2024, the salary threshold to be exempt from overtime eligibility will increase to $43,888, up from the current $35,568 figure. The threshold will increase again to $58,656 on January 1, 2025.
The rule will also update the threshold for highly compensated employees (HCE). This threshold will increase from $107,432 to $132,964 on July 1, 2024. The threshold will increase again to $151,164 on January 1, 2025.
Starting January 1, 2027, new thresholds will be automatically calculated and applied every three years, with thresholds derived using then-current wage data.
The change is estimated to affect some 4 million employees, with some employees who were previously exempt from overtime pay now being eligible for overtime. Employers will likely evaluate changes in salary and staffing levels in order to mitigate the impact of the overtime requirement.
Presently, in order to qualify as exempt from overtime laws, employees must pass three tests:
- The employee is paid on a salary or fee basis
- The employee compensation exceeds the minimum eligibility amount
- A job duties test.
The tests differ slightly for HCE employees, who do not need to pass the full job duties test if they meet the HCE income threshold.
Importantly, there are some workers who are exempt from the rule, including medical workers, lawyers, teachers, clergy, computer professionals, and outside sales employees.
Review your FLSA Compliance with Warner PLLC
Now is the time to review your pay practices and classifications to ensure your organization is aligned with local, state, and federal laws. Identify those employees affected, communicate the changes, and plan to implement payroll changes when the rule takes effect.
If you’re an employee or an employer with questions or concerns about overtime eligibility or responsibilities, talk to Warner PLLC. We have extensive experience in all areas of employment law and can help guide you regarding as your unique situation.
