The Department of Labor Increases the Fair Labor Standards Act’s Overtime Salary-Level Threshold
The U.S. Department of Labor has stated that it will publish a final rule raising the Fair Labor Standards Act’s minimum annual salary threshold for overtime pay eligibility in a two-step process. Starting July 1, the threshold will increase from $35,568 to $43,888 per year. It will then increase to $58,656 on Jan. 1, 2025. Starting July 1, 2027, salary thresholds will update every three years, by applying up-to-date wage data to determine new salary levels. To be exempt from overtime under the FLSA’s “white collar” executive, administrative and professional exemptions—the so-called white-collar exemptions—employees must be paid a salary of at least the threshold amount and meet certain and duties tests. If they are paid less or do not meet the tests, they must be paid 1 1/2 times their regular hourly rate for hours worked in excess of 40 in a workweek. The Department of Labor conducted extensive engagement with employers, workers, unions, and other stakeholders before issuing its proposed rule in September 2023 and considered more than 33,000 comments in developing its final rule. The updated rule defines who is a bona fide executive, administrative and professional employee exempt from the Fair Labor Standards Act’s overtime protections. Key provisions of the final rule include the following:
- Expanding overtime protections to lower-paid salaried workers.
- Giving more workers pay or valuable time back with their family: By better identifying which employees are executive, administrative, or professional employees who should be overtime exempt, the final rule ensures that those employees who are not exempt receive time-and-a-half pay when working more than 40 hours in a week or gain more time with their families.
- Providing for regular updates to ensure predictability. The rule establishes regular updates to the salary thresholds every three years to reflect changes in earnings. This protects future erosion of overtime protections so that they do not become less effective over time.
Employers must now decide whether to raise the salary of those employees who earn above the overtime threshold under the old standard, but below it under the new standard, so they remain exempt. Employers that choose not to raise these employees’ salaries should be prepared to pay overtime to these employees when they work more than 40 hours in a workweek. Schedules for those employees whose salaries are not raised above the new threshold may need adjusting to limit overtime costs. Careful communication should be rolled out to explain why employees formerly categorized as exempt are now nonexempt.
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