Beginning soon, more employees will qualify for overtime. The U.S. Department of Labor has increased the number of employee who qualify for non-exempt status, which means an increase of the number of employees who qualify for over-time pay. The next increase will take place on July 1, 2024, followed by another increase on January 1, 2025.
The Fair Labor Standards Act (“FLSA”) establishes minimum wage, overtime pay, recordkeeping and youth employment standards that affect employees in the private sector as well as non private sector. The FLSA requires that most employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at not less than time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek. The FSLA also provides exemptions from both minimum wage and overtime pay for employees who are highly compensated and employees who are employed as bona fide executive, administrative, professional, outside sales employees, and certain computer employees. This is where the terms “exempt” and “non-exempt” come from. Employees who are classified as “exempt” are not entitled to overtime, whereas “non-exempt” employees are.
To qualify as “exempt” the employees must meet certain legal tests related to their job duties and responsibility and also be paid a base salary that exceeds a certain threshold. Job titles do not control whether someone if exempt or non-exempt. An employee’s specific job duties and salary must meet all the requirements of the Department of Labor’s regulations.
Currently, to qualify for the executive, administrative, and professional employee exemption employee must be compensated on a salary basis at a rate not less than $684 per week, which annualizes to $35,568 per year. To qualify for the highly compensated employees performing office or non-manual work must be compensated at least $107,432 a year (and paid a salary or fee of at least $684 per week).
Beginning on July 1, 2024, the U.S. Department of Labor has raised the level of income threshold for employees to be considered exempt, and will continue to raise it again on January 1, 2024.
On July 1, 2024, the new rule increases in the threshold for bona fide executive, administrative, and professional employees to $844 per week, which annualizes to $43,888 per year. The rule also raises the annual compensation threshold for “highly-compensated employees” to $132,964 per year (and paid a salary or fee of at least $844 per week).
Then, on January 1, 2025, the rule raises the threshold for bona fide executive, administrative, and professional employees to $1,128 per week, which annualizes to $58,656 per year. The rule raises the annual compensation threshold for highly compensated employees to $151,164 per year (and paid a salary or fee of at least $1,128 per week).
Then again, on January 1, 2027 and every three years thereafter, the Department of Labor intends to increase the salary levels “to be determine by applying to available data the methodology used to these the salary level in effect at the time of the update.
| Date | Standard Salary Level | Highly Compensated |
|---|---|---|
| Before July 1, 2024 | $684 per week $35,568 per year | $107,432 per year (at least $684 per week paid on a salary or fee basis) |
| July 1, 2024 | $844 per week $43,888 per year | $132,964 per year (at least $844 per week paid on a22 salary or fee basis) |
| January 1, 2025 | $1,128 per week $58,656 per year | $151,164 per year (at least $1,128 per week paid on a salary or fee basis) |
| July 1, 2027 (and every 3 years) | To be determined | To be determined |
Best Practices
Employers should not wait until July 1, 2024 to review how this affects their company’s accounting department.
- Employers should continuously review their classifications of employees as exempt and non-exempt;
- Employers should notify their accounting departments or third party vendors to verify that they are properly tracking newly “non-exempt” employees for over-time purposes.
- Employers should track all exempt and non-exempt employee hours in the event that their classifications are incorrect and overtime is owed.
- All employers should review their classifications of employees as exempt or non-exempt in order to comply with this new rule and
The issue of exempt versus non-exempt employee is an area that requires analysis of whether the employee meets the salary requirements as set forth above and also meets other factors outlined by the U.S. Department of Labor. As with most other employment issues, it is not a one-size-fits-all analysis.
If you have any questions, or need assistance with your handbooks or review your current classification standards, please contact Kristin Tauras at ktauras@mckenna-law.com.
If you have any questions or concerns regarding your business transactions or structure, please reach out to Andrew Bratzel at abratzel@mckenna-law.com.
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