New Salary Threshold: DOL Issues Final Overtime Rule

The U.S. Department of Labor has released its long-awaited final rule raising the salary threshold for overtime exemptions under the Fair Labor Standards Act (FLSA).

The final rule will be published in the Federal Register and is slated to take effect on July 1, 2024.

Here’s a quick recap – and what we know so far.

What was in the proposed rule

Last summer, the DOL announced a proposed rule to increase the annual salary threshold for exempt employees. Among other things, the proposed rule would:    

• Increase the FLSA regulations’ standard salary level from $684 per week ($35,568 per year) to $1,059 per week ($55,068 per year) 
• Increase the total annual compensation requirement for highly compensated employees from $107,432 per year to $143,988 per year 
• Automatically update earnings thresholds every three years so they keep pace with changes in worker salaries, ensuring that employers could adapt more easily because they would know when salary updates would happen and how they would be calculated.

After the DOL unveiled the proposed rule, the public was invited to submit comments as part of the rulemaking process.

Highlights from the final rule

1. Tiered salary threshold increases

The final rule includes tiered salary threshold increases for the standard salary level and the annual compensation for highly compensated employees:

• Effective July 1, 2024, the standard salary threshold will increase to $844 per week ($43,888 per year) and the annual compensation for highly compensated employees will increase to $132,964.
• Effective Jan. 1, 2025, the standard salary threshold will increase to $1,128 per week ($58,656 per year) and the annual compensation for highly compensated employees will increase to $151,164.

“The Department estimates that in Year 1, approximately 1 million employees who earn at least $684 per week but less than $844 per week will be impacted by the initial update applying current wage data to the standard salary level methodology from the 2019 rule, and approximately 3 million employees who earn at least $844 per week but less than the new standard salary level of $1,128 per week will be impacted by the subsequent application of the new standard salary level,” according to the DOL’s executive summary of the rule.

2. Automatic updates

Mirroring the proposed regs, the final rule adopts a mechanism to automatically update the earnings threshold every three years.

Effective July 1, 2027, and every three years thereafter, new thresholds will be set by using the data available and the methodology outlined in the final rule.

To learn more, check out the DOL’s FAQ on the new rule.

What it means for HR

First, employers must determine which exempt employees will be affected by the new rule. Then, companies will need to decide whether to give those employees a pay raise or transfer them to nonexempt status and pay overtime if they work more than 40 hours in a workweek.

Moreover, employers must implement a careful communication strategy to explain to employees why certain decisions were made.

Some employees who become nonexempt workers will likely view the change as a demotion – especially if they lose the ability to work on certain projects to ensure they don’t work more than 40 hours in a workweek.

Likewise, some exempt employees might be resentful if they’re asked to take on additional duties as workloads are shifted.

And of course, the new overtime rule may be challenged in court. You probably remember the 2017 decision, where a federal judge in Texas blocked the overtime rule that was supposed to take effect on Dec. 1, 2016.

But counting on a legal challenge to block the rule isn’t a solid business strategy to help the company comply with new regulations.