Final DOL Rule Makes 4.3 Million More Americans Eligible for Overtime Pay

On July 1, 2024, the number of salaried American workers who must receive overtime pay (time-and-half for all hours worked above 40 per week) was expanded dramatically. A Final Rule published by the Department of Labor (DOL) on April 23, 2024, raises the salary threshold for exempt bona fide executive, administrative, or professional (EAP) employees as well as for “highly compensated employees.” The DOL estimates that approximately 4.3 million more Americans will be entitled to overtime pay once this adjustment takes effect.

Here is what employers need to know about the Final Rule and the steps they can take in this new era of overtime compensation obligations.

EAP Exemption

Under the Fair Labor Standards Act (FLSA), the previous salary threshold for qualifying for the “white collar” or EAP exemption for overtime pay was $35,568. The Final Rule raises that threshold in two stages:

• On July 1, 2024, the salary threshold for EAP exemptions increased to $43,888 per year (or $844 per week).

• On January 1, 2025, the threshold increases to $58,656 per year (or $1,128 per week).

After these two initial adjustments, the threshold will go up every three years to reflect current earnings data, starting July 1, 2027. Importantly, while the Final Rule adjusts the salary level applicable to the EAP exemption, it does not change the test for determining whether an employee’s job duties qualify them for the exemption.

Similarly, employers may still apply nondiscretionary bonuses, commissions, and other incentive payments to satisfy up to ten percent of the new salary levels if they pay those sums annually or on a more frequent basis.

Exemption for “Highly Compensated Employees”

Similar to the EAP exemption, the “highly compensated employee” exemption applies to salaried workers who earn more than the designated amounts, whose primary duties include performing office or non-manual work, and who customarily and regularly perform at least one of the duties or responsibilities of an exempt EAP employee.

Previously, a highly compensated employee is defined as one who earned an annual salary of $107,432 or more. Under the Final Rule, a highly compensated employee will qualify for the exemption only if they earn a salary of:

• $132,964 starting on July 1, 2024.
• $151,164 starting on January 1, 2025.

Next Steps for Employers

To prepare for this new overtime pay landscape, employers should consult with experienced employment counsel to thoroughly review the compensation structures and amounts – as well as the job duties and responsibilities – for all salaried members of their workforce. It may be necessary or prudent to reclassify some employees or increase salaries to ensure that certain workers remain exempt from overtime pay obligations under the new, higher thresholds.

If you have questions about the Final Rule’s impact on your business or would like assistance with a workforce audit to determine the best course of action, please contact Jordan Held at Kreis Enderle.