The Department of Labor has recently finalized new overtime rules and regulations that adjust the salary threshold for specific overtime exemptions within the Fair Labor Standards Act (FLSA).
Background
Under the FLSA, every worker is guaranteed a minimum wage for all hours worked and restricts the number of hours an employee can work without receiving extra compensation for overtime. Typically, employees covered by the FLSA must receive overtime pay for hours worked in excess of 40 in a single workweek. Certain exemptions exist that exclude specific employees from these overtime regulations.
Regulations generally require that three tests be met for overtime exemption to apply:
- Salary Basis Test: The employee must receive a predetermined and fixed salary that is not subject to reduction because of variation in the quality or quantity of work performed.
- Salary Level Test: The salary amount must meet a specified threshold.
- Duties Test: The employee’s job responsibilities must primarily involve executive, administrative, or professional duties, as defined by the regulations.
New Rules
Effective July 1, 2024, executive, administrative, and professional employees must receive a minimum annual salary of $43,888 (or $844 per week) to satisfy the salary level test for overtime exemption, an increase from the previous threshold of $35,568 annually (or $684 per week). Effective January 1, 2025, this rate increases to $58,656 (or $1,128 per week).
Special Rule for Highly Compensated Employees (HCE)
Employees earning an annual compensation of at least $132,964 (formerly $107,432) are eligible for exemption under certain conditions. These conditions entail meeting an annual total compensation threshold, including receiving at least $844 per week paid on a salary or fee basis, having a primary duty involving office or non-manual work, and regularly performing one or more of the exempt duties associated with executive, administrative, or professional employees. Effective January 1, 2025, the compensation threshold increases to $151,164.
Updates Every Three Years
Legislation establishes a mechanism to regularly update the salary and HCE compensation thresholds beginning July 1, 2027, and every three years thereafter.
What Did Not Change
It’s important to note that the duties test and salary basis tests, which are applied alongside the salary level test to determine exemption eligibility, remain unchanged under the final rule.