The US Department of Labor on April 23 increased the salary thresholds required to exempt a salaried executive, administrative or professional employee from federal overtime pay requirements.
Effective July 1, the Fair Labor Standard Act’s salary threshold will increase to the equivalent of an annual salary of $43,888, or $844 a week, from the present annual salary threshold of $35,568 — enacted by the Trump administration in 2019 [1]; it will increase again on Jan. 1, 2025, to $58,656 annually, or $1,128 per week.
The rule will also adjust the threshold for highly compensated employees from the current $107,432 per year to $132,964 on July 1, and then to $151,164 on Jan. 1, 2025.
Salary thresholds will update every three years by applying up-to-date wage data to determine new salary levels starting July 1, 2027.
In addition, the updated rule defines who is a bona fide executive, administrative and professional employee exempt from the Fair Labor Standards Act’s overtime protections.
The labor department estimates the changes impact almost 4 million workers who are currently salaried.
“This rule will restore the promise to workers that if you work more than 40 hours in a week, you should be paid more for that time,” Acting Secretary Julie Su said in a press release. “Too often, lower-paid salaried workers are doing the same job as their hourly counterparts but are spending more time away from their families for no additional pay. That is unacceptable.”
This rule will likely be challenged in the courts, The National Law Review reported [2]. However, it is uncertain whether these challenges will be successful. Therefore, businesses should take steps now to prepare:
- Review current exempt employees who earn between $35,568 and $55,656 per year. You can track employees’ actual hours worked now to learn the potential impact of converting them to overtime pay.
- Review current compliance. Although the proposed rule changes the salary threshold but not the other factors for an employee to be eligible for the “white collar” federal overtime exemption, the rule may cause employees to scrutinize their exempt classification. Employers should ensure that their exempt employees meet the three exception requirements: (1) paid on a salary basis; (2) paid at least the designated minimum salary; and (3) perform certain duties (which vary based on the exemption).
- Plan to give advance notice to employees and provide training to managers and those workers impacted. If converted to non-exempt status, employees will need to be trained in record keeping requirements, timekeeping procedures, overtime approval policies and other specifics that may vary from business to business.