On April 23, 2024, the Department of Labor (DOL) announced Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees, its final rule increasing compensation thresholds for overtime eligibility. This new rule will go into effect on July 1 and will affect approximately 4 million workers. Due to the widespread impact of this rule, employers will need to audit the exemption status of their employees in order to comply with the new rule.

Under the Fair Labor Standards Act, employers are required to provide overtime pay to employees who work more than 40 hours in a workweek unless an employee is exempt based on their classification and method of pay. Under the DOL’s current regulations, the majority of positions in which employees are exempt from overtime pay are executive, administrative, professional, or computer employees who perform certain duties. Currently, these employees must also earn a guaranteed salary of at least $684 per week, or $35,568 annually. Also under the current regulations, highly compensated employees (HCEs) must (1) earn a total annual compensation of $107,432, which includes at least $684 per week, (2) have primary duties that include performing office or non-manual work, and (3) regularly perform at least one of the exempt duties or responsibilities of an exempt executive, administrative, or professional employee.

The final rule not only changes the overtime threshold but also adopts a mechanism to update the threshold every three years. Once the rule takes effect, the new thresholds will be as follows:

• July 1, 2024: $844/week ($43,888/year)
• January 1, 2025: $1,128/week ($58,656/year)

For HCEs, the salary threshold will be increased as follows:

• July 1, 2024: $132,964/year
• January 1, 2025: $151,164/year

Starting July 1, 2027, the salary threshold will be updated with new wage data to implement new salary levels. This final rule will not impact bonuses, which allows employers to use nondiscretionary bonuses, incentive payments, and commissions to satisfy up to 10% of the standard salary for the exemption. Employers are also allowed to make one lump sum payment immediately after the calendar year to get an employee to the minimum threshold.

This final rule is bound to face some of the same legal challenges that prior rules increasing the salary threshold faced. This will be the first increase to the salary threshold since January 1, 2020.

As the implementation of this final rule draws closer, employers should begin reviewing their employees’ exemption statuses in order to determine which of their employees will be affected. Employers should be prepared to increase compensation or change exempt classifications by July 1, 2024.