The U.S. Department of Labor has revised the overtime exemption regulations under the Federal Fair Labor Standards Act (FLSA). Effective July 1, 2024, fewer employees qualify for overtime exemptions, which may increase labor costs.

Overview of Overtime

Employees may be paid overtime regardless of whether they are paid on an hourly or salary basis. An employee is not entitled to overtime when they fall within an FLSA exemption. Regular overtime pay is 1.5 times the normal pay rate and kicks in after 40 hours of work have been performed that week. Whether the employee qualifies as exempt hinges on both the nature of the job duties and the amount of compensation.

Nature of Job Duties

The recent revision to the FLSA does not directly change the standing exemptions. Individuals who are not exempt include those who perform manual labor such as construction work, manufacturing, or driving vehicles. If an employee is a manager or office worker, they may fall within the exemptions. The three main overtime exemptions are managerial, administrative, and professional.

(a)    Managerial Exemption: Employees primarily overseeing company departments or subdivisions, managing at least two full-time employees, and earning above the standard salary level (SSL).

(b)    Administrative Exemption: Employees primarily engage in nonmanual work related to business operations, exercising discretion and independent judgment, and earning above the SSL.

(c)    Professional Exemption: Employees performing work necessitating advanced knowledge or creativity in a recognized field and earning above the SSL.

Please keep in mind that team leaders, foremen, crew leads, and other workers who work on job sites or in the field do NOT qualify for any salary exemption.

AMENDMENT: Adjusted Minimum Compensation Threshold

Employees who earn below the standard salary level (SSL) are not eligible for overtime exemption, regardless of the duties their job entails. On July 1, 2024, the SSL increased from $684 per week to $844 per week. So, if an employee makes less than $844 per week, or $43,888 annually for a year-round worker, then the employee may not be exempt from overtime, even if they would otherwise have qualified under an exemption. The weekly salary will rise again, on January 1, 2025, to $1,128 per week or $58,656 per year. Every three years, beginning January 1, 2025, these standard salary level thresholds will adjust to align with changes in worker salaries to facilitate a smoother adaptation for employees.

Revised Highly Compensated Employee (HCE) Threshold

If an employee is highly compensated, then the FLSA allows some employers to avoid paying overtime. Employees who fit within the Highly Compensated Employees (HCE) exemption are those who earn more than the HCE exemption level, do not perform manual labor duties, and regularly perform either executive, administrative, and/or professional duties. The revision that took place on July 1, 2024, increased the HCE exemption from $107,432 annum to $132,964 an annum. This will increase again on January 1, 2025, to $151,164.

Potential Legal Challenges

While the U.S. Department of Labor has approved this rule, legal challenges could impede its implementation. Stay updated on any developments regarding legal challenges and their potential impact on the enforcement of the rules. Overtime Pay | U.S. Department of Labor (dol.gov)

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