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New DOL Overtime Rule: FAQs
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Workforce Management

New DOL Overtime Rule: FAQs

UPDATE: DOL Announces New Overtime Rule

On April 23, 2024, the U.S. Department of Labor (DOL) announced its new overtime rule, and increased salary levels for executive, administrative and professional workers (EAP) and highly compensated employees (HCE) to be exempt from overtime.

  • Increased Salary Threshold: Effective July 1, 2024, to qualify for exemption, executive, administrative, or professional employees must earn at least $43,888 annually ($844 per week). This amount increases to $58,656 ($1,128 per week) on January 1, 2025.
  • Higher HCE Threshold: Also on July 1, 2024, highly compensated employees now require a minimum annual compensation of $132,964 (previously $107,432) to be exempt. This threshold increases to $151,164 on January 1, 2025.
  • Automatic Updates: Salary and compensation thresholds will be automatically adjusted every three years to reflect changes in worker pay.

These changes increase the financial requirements for exempt status well beyond current levels. Notably, the DOL did not revise the “duties tests,” which remain an essential factor when determining if an employee can be lawfully classified as exempt.

Potential Challenges to the New Rule

The finalized rule is likely to face court challenges and could be scrutinized if a new presidential administration takes office in 2025.

What Employers Should Do Now

Despite potential roadblocks, employers should prepare for the rule to take effect as planned. Here’s what you can do:

  • Assess Your Workforce: Analyze your exempt positions, including job functions, locations, and salaries, to understand the impact of the changes.
  • Consult Legal Counsel: Work with your company’s attorneys to grasp the rule’s full implications for your organization as well as potential state compliance issues.
  • Prepare for Change: If many exempt employees become non-exempt, develop workforce adjustment strategies, necessary training, and clear communication plans.

Our compliance team answered the most frequently asked questions around the new DOL overtime rule. 

Q: What determines if an employee falls within one of the exemptions?

A: To have exempt employee status, there are three exempt employee requirements that must be met: The worker must be paid on a salary basis, make the minimum salary for exempt employees, and have job duties that are considered exempt. Fact Sheet 17A

Q: What are the significant changes employers must know about the final rule?

  • The salary threshold has increased to $43,888, effective July 1, 2024. This amount increases to $58,656 on January 1, 2025.
  • Raises the total annual compensation requirement for highly compensated employees to $132,964. This threshold increases to $151,164 on January 1, 2025.

Note: The job duties test did not change.

Q: Who is covered by the FLSA?

A: Any employee that does not fit into the exempt category is considered a nonexempt employee. For more information: https://www.dol.gov/whd/regs/compliance/whdfs14.htm

Q: What if a state has established its own overtime rules?

A: In cases where an employee is subject to both the state and federal overtime laws, the employee is entitled to overtime according to the higher standard (i.e., the standard that will provide the higher overtime pay). Not all states have separate laws, but employers should consult their specific state laws to determine applicability.

Q: Can employers use bonuses to satisfy part of the salary level test?

A: Yes, one of the provisions allows employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary test.

Q: Does the Final Rule change how employers may use bonuses to satisfy the salary level for highly compensated employees?

A: A highly compensated employee must receive at least the new standard salary amount of $844 per week on a salary basis, without regard to the payment of nondiscretionary bonuses and incentive payments.

Q: How does the catch-up payment process work for employers?

A: If at the end of the calendar year pay period the salary paid plus the additional payments do not equal the standard salary, the employer would have one pay period to make up the shortfall.

Q: How should a company handle exempt employees that work prorated hours?

A: Exempt employees are not granted the protections of the FLSA and are therefore not entitled to overtime pay. If the employees meet the job duty classifications and receives salary in excess of the 2024 threshold of $844/week, they are exempt. For more information: https://www.dol.gov/agencies/whd/overtimepay

Q: Does the FLSA rules include outside commissioned salesmen?

A: The FLSA classification for an outside sales representative requires that the individual primary duty be sales-related work and that such work be customarily and regularly performed away from the employer’s regular place or places of business. The agency distinguishes between outside sales, and inside sales, and this exemption does not apply to inside sales staff. For more information: https://www.dol.gov/whd/overtime/fs17f_outsidesales.pdf

Q: Are home health agencies exempt from overtime rules?

A: Most home care workers must be paid at least the federal minimum wage and overtime. The relevant question is often who is responsible for making sure these workers are paid according to these FLSA requirements. Whether you are responsible for the worker being paid federal minimum wage and overtime depends on whether you are an “employer” as defined by the FLSA. For more information: https://www.dol.gov/whd/homecare/homecare_guide.pdf

Q: If an employee works more than 8 hours on a given day but less than 40 hours for the total workweek, is that employee entitled to overtime pay?

A: The Federal Department of Labor does not require overtime for hours worked over 8 in a day. However, there are states that have this regulation, and you will want to verify the states overtime regulations.

Q: How does this new law impact highly compensated employees?

A: For highly compensated employees, the annual compensation level to be exempt from overtime pay will increase from $107,432 to $132,964 on July 1, 2024. On January 1, 2025, it will increase to $151,164.

This information is not intended as legal advice. You should seek specific legal advice before acting with regard to the subjects mentioned herein. Any calculations contained herein are for example purposes only.

Download Our Free DOL QuickStart Guide for Employers

As your organization considers how to prepare and comply, we’ve created this guide which outlines the new ruling, provides tips to manage impacted employees and offers a checklist of key details to follow to mitigate risk.