What does the new federal overtime regulation mean to employers

As of July 1, 2024, millions of additional workers became eligible for overtime pay thanks to the U.S. Department of Labor’s (“DOL”) new salary threshold for certain exempt employees.  Employers need to act quickly to ensure their pay practices align with this significant change. Specifically, in April 2024, the DOL announced that the salary threshold for the so-called “white-collar” exemptions would rise from $35K to about $44K on July 1 and would then jump to nearly $59k at the start of 2025 – which means your workers will need to earn at least this new threshold to even be considered exempt from OT pay under the white-collar exemptions. According to the DOL, the change will impact about 4 million workers, and it could prompt big changes to employer’s compensation plans. If you haven’t’ already evaluated the situation, it’s important to do so immediately and plan for what’s ahead. 

Under the federal Fair Labor Standards Act (FLSA), employees generally must be paid an overtime premium of 1.5 times their regular rate of pay for all hours worked beyond 40 in a workweek — unless they fall under an exemption.

The DOL’s objective is to increase the number of employees eligible for overtime. To accomplish this, the DOL has revised regulations to raise the minimum salary that an employee must receive to be eligible for a white-collar exemption.

Currently, the salary threshold for exempt employees is $684 a week ($35,568 annualized) under the administrative, executive, and professional exemptions — which are collectively known as the “white-collar” exemptions. The DOL’s new rule raises the rate first to $844 a week ($43,888 annualized), then to $1,128 (or $58,656 a year). These significant increases will require some planning if you have exempt employees who earn less than the finalized amounts.

In addition to raising the salary threshold, the rule makes the following changes:

• The salary threshold will be automatically updated every three years starting on July 1, 2027.
• The threshold for the “highly compensated employee” (HCE) exemption will rise, first to $132,964 on July 1, then to $151,164 on January 1, 2025 – which is also a bigger increase than initially proposed and is a significant increase from the current $107,432. The HCE threshold will also be updated every three years.

So, employers need to be taking the following steps to ensure compliance, including reviewing your pay practices for compliance, not just the salary threshold.  Once employers determine who will be affected, consider the impact on employee morale.  Finally, plan to provide as much notice as possible and train  your managers and the newly non-exempt employees on appropriate time-keeping policies. 

For more information regarding the DOL’s new federal overtime regulation please visit https://www.dol.gov/agencies/whd/overtime/rulemaking. 

NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.

Written By:
Scott M. Zurakowski, Esq.
330-497-0700
szurakowski@kwgd.com