The U.S. Labor Department is setting the minimum salary employers need to pay to exempt workers from overtime pay at $43,888 a year ($844 a week), under a final rule it labelled as “restoring and extending” protections under the main federal labor law. This is more than 23% higher than the existing amount that was set in 2019.
Effective 1 July 2024, employers must apply the higher amount in considering whether a covered worker could be exempted from the overtime pay requirement set down by the Fair Labor Standards Act (FLSA). Some 4 million workers could be impacted by this change, the Labor Department said.
The salary test, along with duties tests, are key factors used to determine exempt or nonexempt status under the law and regulations, which lay out criteria for those in executive, administrative, or professional positions to qualify. The duties tests were not adjusted under this latest rule.
Those considered nonexempt workers qualify for overtime pay for hours worked beyond 40 in a work week, at 1.5 times their regular hourly pay rates. Payroll professionals know that if nonexempt workers are paid a salary, an hourly rate equivalent must be determined for establishing accurate overtime pay should they work more than 40 hours in a work week.
A less rigorous test that does not consider duties as much applies to those considered highly compensated employees, and the monetary threshold for these workers to remain exempt from possible overtime pay increases to $132,964 per year, including at least $844 paid weekly on a salary or fee basis, the Labor Department said.
Doctors, lawyers, teachers, and outside sales employees are not subject to the new threshold. Also not included are insurance claims adjusters working under special, emergency circumstances. In addition, certain academic administrative personnel and computer employees paid hourly are subject to special, contingent earning thresholds. Special base rates set for employees in the motion picture industry, employees in Puerto Rico and U.S. territories remain unchanged.
For those covered by the rule, the minimum salary amount rises again in six months. On 1 January 2025, an increase of 33.6%, to $58,656 a year ($1,128 a week) is scheduled to occur, this comes under an added provision to the rule. The highly compensated amount will similarly increase to $151,164 a year on that date.
The rule calls for revisiting and resetting these amounts every three years.
Employers in a Quandary: Compliance Considerations
The federal overtime rule has a history of controversy and legal challenges, most recently when the Obama Administration attempted to similarly raise the salary threshold in 2016, only to have a federal judge in Texas first stay the rule just days before it was to go into effect, and then nullify it later. At that time the salary minimum would have more than doubled.
When that 2016 11th-hour ruling was issued, many employers had already scrambled to change compensation schemes to account for that rule, some raising salaries to meet or exceed the new threshold, others re-evaluating positions as nonexempt and thus subject to overtime pay.
Under the Trump Administration, the Labor Department reproposed the rule with a much smaller increase in the threshold amount. This rule, while challenged, has not been legally blocked from going into effect. That 2019 final rule, which set in place the existing levels at $35,568 a year ($694 a week) or $107,432 a year for highly compensated workers, became effective 1 January 2020.
The Biden Administration has been criticized for its approach in revising the salary basis levels, and, again, as with the Obama Administration rule, there is a high likelihood that lawsuits will be filed that can stop the rule from going into effect. The federal judge in Texas who halted the rule in 2016 remains in his post, and many in industry and commerce, as well as state attorney generals (as in 2016) are poised to file suit to block it.
There are larger issues also being considered by courts, such as whether the Labor Department even has the authority to set the salary levels (which it has for some 70 years) and whether the agency (all agencies, actually) has been given too much deference in interpreting the intent of laws through their rulemaking.
For employers to comply with the new rule, they must make changes by 1 July 2024. Failing to comply with this rule, once it is in place, could result in several penalties, lawsuits from workers, and other fines. This compels advisors to recommend employers identify currently exempt workers who are not at the new salary minimum, and, at the least, plan for adjusting to maintain compliance.
But, will employers move to adjust compensation schemes as many did in 2016, knowing that the rule may not make it to the 1 July finish line? Stay tuned.
Michael Baer is president of Baer Unlimited, an independent research, analysis, and communications provider that helps Payroll modernize operations, stay compliant, and improve the use and security of their data. For more on these issues discussed above, contact him directly at mike.baer@baerunlimited.com, or book Michael as a mentor through the GPA Mentor page.
The U.S. Labor Department is setting the minimum salary employers need to pay to exempt workers from overtime pay at $43,888 a year ($844 a week), under a final rule it labelled as “restoring and extending” protections under the main federal labor law. This is more than 23% higher than the existing amount that was set in 2019.
Effective 1 July 2024, employers must apply the higher amount in considering whether a covered worker could be exempted from the overtime pay requirement set down by the Fair Labor Standards Act (FLSA). Some 4 million workers could be impacted by this change, the Labor Department said.
The salary test, along with duties tests, are key factors used to determine exempt or nonexempt status under the law and regulations, which lay out criteria for those in executive, administrative, or professional positions to qualify. The duties tests were not adjusted under this latest rule.
Those considered nonexempt workers qualify for overtime pay for hours worked beyond 40 in a work week, at 1.5 times their regular hourly pay rates. Payroll professionals know that if nonexempt workers are paid a salary, an hourly rate equivalent must be determined for establishing accurate overtime pay should they work more than 40 hours in a work week.
A less rigorous test that does not consider duties as much applies to those considered highly compensated employees, and the monetary threshold for these workers to remain exempt from possible overtime pay increases to $132,964 per year, including at least $844 paid weekly on a salary or fee basis, the Labor Department said.
Doctors, lawyers, teachers, and outside sales employees are not subject to the new threshold. Also not included are insurance claims adjusters working under special, emergency circumstances. In addition, certain academic administrative personnel and computer employees paid hourly are subject to special, contingent earning thresholds. Special base rates set for employees in the motion picture industry, employees in Puerto Rico and U.S. territories remain unchanged.
For those covered by the rule, the minimum salary amount rises again in six months. On 1 January 2025, an increase of 33.6%, to $58,656 a year ($1,128 a week) is scheduled to occur, this comes under an added provision to the rule. The highly compensated amount will similarly increase to $151,164 a year on that date.
The rule calls for revisiting and resetting these amounts every three years.
Employers in a Quandary: Compliance Considerations
The federal overtime rule has a history of controversy and legal challenges, most recently when the Obama Administration attempted to similarly raise the salary threshold in 2016, only to have a federal judge in Texas first stay the rule just days before it was to go into effect, and then nullify it later. At that time the salary minimum would have more than doubled.
When that 2016 11th-hour ruling was issued, many employers had already scrambled to change compensation schemes to account for that rule, some raising salaries to meet or exceed the new threshold, others re-evaluating positions as nonexempt and thus subject to overtime pay.
Under the Trump Administration, the Labor Department reproposed the rule with a much smaller increase in the threshold amount. This rule, while challenged, has not been legally blocked from going into effect. That 2019 final rule, which set in place the existing levels at $35,568 a year ($694 a week) or $107,432 a year for highly compensated workers, became effective 1 January 2020.
The Biden Administration has been criticized for its approach in revising the salary basis levels, and, again, as with the Obama Administration rule, there is a high likelihood that lawsuits will be filed that can stop the rule from going into effect. The federal judge in Texas who halted the rule in 2016 remains in his post, and many in industry and commerce, as well as state attorney generals (as in 2016) are poised to file suit to block it.
There are larger issues also being considered by courts, such as whether the Labor Department even has the authority to set the salary levels (which it has for some 70 years) and whether the agency (all agencies, actually) has been given too much deference in interpreting the intent of laws through their rulemaking.
For employers to comply with the new rule, they must make changes by 1 July 2024. Failing to comply with this rule, once it is in place, could result in several penalties, lawsuits from workers, and other fines. This compels advisors to recommend employers identify currently exempt workers who are not at the new salary minimum, and, at the least, plan for adjusting to maintain compliance.
But, will employers move to adjust compensation schemes as many did in 2016, knowing that the rule may not make it to the 1 July finish line? Stay tuned.
Michael Baer is president of Baer Unlimited, an independent research, analysis, and communications provider that helps Payroll modernize operations, stay compliant, and improve the use and security of their data. For more on these issues discussed above, contact him directly at mike.baer@baerunlimited.com, or book Michael as a mentor through the GPA Mentor page.