New Rule Updates Federal Overtime Eligibility Requirements

On April 23, 2024, the U.S. Department of Labor (DOL) released a final rule revising some of the requirements for eligibility for overtime. The new rule increases the salary threshold to qualify for an exemption from federal overtime pay for salaried bona fide executive, administrative, or professional employees. 

What Is in the New Rule?

Generally, the Fair Labor Standards Act (FLSA) requires employers to pay overtime to employees who work more than 40 hours a week. However, there is an exemption for executive, administrative, and professional employees (also referred to as “EAP” or “White Collar” employees). To be exempt from overtime pay under the FLSA, employees must generally be paid on a salary basis at or above a specified minimum weekly salary level and meet certain requirements related to their primary job duties. 

The new rule raises the salary threshold from $35,568 per year to $43,888 effective July 1, 2024. It then increases to $58,656 starting January 1, 2025. The threshold for “highly compensated” employees who perform at least one exempt duty will increase from $107,432 to $132,964 on July 1, 2024, and then go to $151,164 on January 1, 2025.

Note the rule does not apply to certain American territories or motion-picture employees.

The salary threshold will be updated automatically every three years based on Census salary data.

When Does the Rule Go Into Effect?

The effective date of the rule is July 1, 2024. The new threshold applies beginning January 1, 2025.

Will the Rule Face Legal Challenges?

Business groups will challenge the rule based on a decision by the U.S. District Court for the Eastern District of Texas in 2017. That Court invalidated the DOL’s attempt to almost double the salary threshold in 2016. The Court found that while the DOL had the authority to set a salary threshold, it could not set it at an arbitrarily high amount that defeated Congress’s intent to determine exempt status based on job duties.

U.S. Supreme Court Justice Kavanagh also questioned the DOL’s authority to set salary thresholds in a 2022 opinion.

How Are State Overtime Rules Affected By the Federal Rule?

Employers must comply with federal, state, and local wage laws including those involving exemptions from overtime. Many states have higher thresholds than the federal rules and do not have a separate exemption for highly compensated employees.

What Steps Should Employers Take Now?

Employers should consult legal counsel to help identify what changes they may need to make to comply with the new rule if it goes into effect.

Please feel free to contact any of our attorneys if you have questions about the final rule or if you would like our guidance in determining the best strategy for your business.

NOTICE: Material provided on this website has been prepared by Kauff McGuire & Margolis LLP solely for general informational purposes, and it is not intended to and does not constitute legal advice. Material provided on the website is not privileged and does not create an attorney-client relationship with the Firm or any of its lawyers.