Department of Labor Expands Overtime Rule for Millions of Employees

The Department of Labor (DOL) has issued a new rule expanding overtime eligibility to cover millions of new employees. The new rule changes the salary threshold used to determine whether an employee is exempt from overtime pay, with imminent tiered increases set for July 1, 2024, and January 1, 2025, respectively.  Because of these substantial adjustments in the salary basis threshold, employers face significant increases in their overtime burden going forward.     

The Fair Labor Standards Act (FLSA) has several provisions that exempt certain employees from overtime pay. Several of the major exemptions require an employee to be salaried, make more than a certain amount per year, and work in a “bona fide executive, administrative, or professional” capacity. 

The FLSA also contains provisions for highly compensated employees, which exempt employees making at least $107,432 from minimum wage and overtime rules if they are paid the designated minimum weekly salary of $684 on a salary basis, primarily perform office or non-manual work, and perform one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee.      

Currently, those employees making less than $35,568 are eligible for overtime wages. A bump to $43,888 will go into effect on July 1, 2024, with the ceiling increased to $56,656 on January 1, 2025. Under the new rule, this ceiling will be automatically updated every three years, starting July 1, 2027. 

The highly compensated threshold will increase to $132,964 on July 1, 2024, with another increase to $151,164 on January 1, 2025. This threshold will also be updated every three years. 

The rule is likely to face staunch legal opposition, much like a similar attempt by the Obama administration to raise the threshold in 2016. However, any court decisions halting the new rule may not occur until after the rule goes into effect, posing precisely the predicament that arose under the Obama-era rule that was subsequently struck down.

Employers should begin to review their pay practices to ensure compliance with the new rules, including examining whether employees who meet the white collar or highly compensated thresholds also meet the duties test. Employers should also make a plan for newly reclassified employees in preparation for the threshold increase on July 1, 2024.