New DOL Overtime Rule – What to Do?

The Department of Labor has announced a final rule that will increase the Fair Labor Standards Act’s (FLSA’s) annual salary-level threshold from $35,568 to $43,888, effective July 1, 2024.  An additional increase to $58,656 will take effect on Jan 1, 2025.  Furthermore, the final rule states that after July 1, 2027, the salary threshold will update every three years based on wage data at that time.

WHO IS AFFECTED?

The new rule affects those who are employed in positions meeting the requirements for the executive, administrative, professional, and highly compensated employee exemptions. 

Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional, and outside sales employees. More information can be found here regarding the changes. 

To qualify for exemption, employees generally must meet certain tests regarding their job duties and be paid on a salary basis at not less than $684 per week – soon to be $844 per week as of July 1, 2024, and then to $1,128 as of January 1, 2025.  For an employee to be subject to the exemption, their job duties and salary must meet criteria within the FLSA duties test.  The FLSA duties test is what an employer must consider when determining whether an employee should be classified as exempt or non-exempt.

DUTIES TEST

Meeting the salary threshold does not automatically make an employee exempt from overtime pay; employees must earn at least the standard salary threshold of $35,568 (with increases to $43,888 as noted above), and fulfill one of the exemptions in the standard duties test.

• Salary basis test. The employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed.
• Salary level test. The amount of salary paid must meet a minimum specified amount of $35,568 (with increases to $43,888 as noted above), unless and until that figure is revised upward.
• Duties test. The employee’s job duties must primarily involve executive, administrative or professional duties as defined by the regulations.
• For the Executive exemption, employees must have a primary duty of managing the enterprise or a department or subdivision of the enterprise; must customarily and regularly direct the work of at least two employees; and must have the authority to hire or fire, or their suggestions and recommendations as to the hiring, firing, or changing the status of other employees must be given particular weight.
• For the Administrative exemption, employees must have a primary duty of performing office or nonmanual work directly related to the management or general business operations of the employer or the employer’s customers, and their primary duty must include the exercise of discretion and independent judgment with respect to matters of significance.
• For a Professional exemption, employees must have a primary duty of work requiring knowledge of an advanced type in a field of science or learning customarily acquired by prolonged, specialized, intellectual instruction and study, or must specialize in a few other similarly, highly specialized fields, such as teaching, computer analytics and engineering.

A great place to start your review of the duties test is the employee’s job description. This document should contain the essential job functions and the knowledge and critical skills required to complete the job tasks.

Employers can also visit the Department of Labor website to learn more details regarding the Duties Test.

WHY THE CHANGE?

Some goals of the final rule include expanding overtime protections, clearer distinctions of who should be considered exempt vs non-exempt, and establishing regular updates to the salary threshold.

Employers should review their employee’s current classifications and salary levels to determine who is affected by the new rule.  If there is anyone who may be affected, employers may consider increasing their salaries to meet the new threshold.  They could also consider moving them to an hourly classification to allow for overtime pay.

WHAT SHOULD EMPLOYERS DO TO PREPARE?

1. Review employees’ job descriptions to see if they meet the exempt statuses and determine which employees may be affected by this final overtime rule (i.e., those who make less than $844 or $1,128 per week);
2. Prepare to increase compensation or change exempt classification by July 1, 2024; or change an employee from a salaried, exempt status to an “hourly worker” by July 1, 2024; and
3. Plan for how to roll out reclassification decisions, which could include training on timekeeping requirements and rules against off-the-clock work and managing employee concerns regarding losing their salaried status.

HOW CAN ACCUPAY HELP?

AccuPay would encourage employers to take a proactive approach to any potential changes due to the new rule.  Reviewing current staff and implementing a plan ahead of the July 1, 2024 date will be critical to success and remaining in compliance.

We have several SHRM certified professionals on staff who can help discuss the upcoming changes if questions arise. Contact us at hr@accupay.com

CHALLENGES TO THE NEW RULE

There is potential for court challenges prior to the July 1, 2024 effective date.  When the last FLSA rule was instituted in 2016, there were court challenges prior to its passing.  If this does occur, the implementation of the new rule may be extended.  Employers should begin preparing their plan for rollout and implementation now. As news develops, the DOL will keep us informed of any changes and updates.