Department of Labor Final Rule on Overtime Exemption

At-A-Glance

• On April 23, 2024, the U.S. Department Of Labor (DOL) published the Fair Labor Standards Act (FLSA) final rule updating the “white-collar” exemptions from overtime eligibility.
• Effective July 1, 2024, the minimum salary threshold under the Executive, Administrative, and Professional (EAP) exemptions will increase to $844 per week ($43,888 annually). These amounts will again increase to $1,128 per week ($58,656 annually) effective January 1, 2025.
• Effective July 1, 2024, the total annual compensation threshold for the highly compensated employee (HCE) exemption will increase to $132,964. This amount will again increase to $151,164 effective January 1, 2025.
• The DOL is adopting a new process that will update these levels every three years moving forward.
• Refer to the DOL FAQs document for more information.

Final Rule to Increase Thresholds for FLSA Exemption

On April 23, 2024, the U.S. Department of Labor (DOL) issued a final rule on the salary threshold levels associated with the Executive, Administrative, and Professional (EAP), exemptions of the Fair Labor Standards Act (FLSA) requirements for overtime compensation and timekeeping. These changes were in response to the 2023 proposal  and subsequent public comment period.

Generally, exempt, white-collar employees must meet a job duties test and earn a minimum salary that is paid on a salary basis (without regard to the number of hours worked during the workweek) to be exempt from FLSA requirements on overtime compensation and timekeeping.

The minimum salary amount of $684 per week ($35,568 annual salary) was last updated by the DOL in 2019. The new final rule will increase that minimum salary threshold to $844 per week ($43,888 annually) on July 1, 2024, and again to $1,128 per week ($58,656 annually) starting January 1, 2025.

Highly compensated employees (HCEs) will also see the FLSA’s minimum annual compensation threshold increase from $107,432 to $132,964 starting July 1, 2024, with an additional increase to $151,164 on January 1, 2025.

Finally, the DOL has adopted a new process for these salary threshold levels to be automatically updated every three years to ensure said levels keep pace with dynamic changes in the labor market.

Applicability

These threshold increases apply to all U.S. states. Contrary to the 2023 Notice of Proposed Rulemaking, these changes will not apply to U.S. territories, where existing rules continue to apply.

The DOL estimates the new rule’s changes will extend overtime protections to an additional 1 million workers with the first change on July 1, 2024, and an additional 3 million workers on January 1, 2025.

For more information on this new final rule, please refer to the DOL’s FAQ.                                

Next Steps

Employers may want to consider auditing their current compensation structures and calculating the costs associated with different options to ensure their organizations have an informed strategy for any new requirements. Paylocity can provide support in these efforts with reports and our Compensation module. See PEAK for more information.

Stay tuned for additional resources from Paylocity, including an upcoming webinar and podcast on this topic.

Thank you for choosing Paylocity as your Payroll Tax and HCM partner. This information is provided as a courtesy, may change and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney or Advisor.