More Salaried Workers Eligible for Overtime Pay Under DOL’s New Overtime

The U.S. Department of Labor’s (“DOL”) new rule, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees, has significantly changed the Fair Labor Standards Act’s (“FLSA”) overtime pay requirements. Effective July 1, 2024, the new rule increases the minimum salary threshold for exempt employees, making more salaried workers eligible for overtime pay.  

Who is exempt from receiving overtime pay under the final rule?

Under the FLSA, individuals employed in a bona fide executive, administrative, or professional capacity (“EAP”) are exempt from the DOL’s minimum wage and overtime requirements. To fall within the EAP exemption, employees generally must: 

• Be paid a salary; 

• Be paid at least a specified weekly salary level and 

• Primarily perform administrative, executive, or professional duties. 

The DOL’s regulations provide an alternative test for certain highly compensated employees (“HCEs”), who are also exempt from minimum wage and overtime requirements. 

The final rule updates the EAP and HCE salary thresholds as follows: 

• Beginning July 1, 2024, the new rule raises the EAP exemption salary threshold from $684 per week to $844 per week. For HCEs, the annual compensation level to be exempt from overtime pay will increase from $107,432 to $132,964. 

• On January 1, 2025, the EAP exemption threshold will increase again to $1,128 per week, and the HCE exemption threshold will increase to a compensation level of $151,164. 

Beginning July 1, 2027, these eligibility thresholds will be updated every three years based on current wage data, and individuals who earn less than the thresholds may become eligible for overtime pay. 

What are the repercussions for non-compliance with the final rule?

Non-compliance with the DOL’s final rule can have significant repercussions for employers, including: 

• Civil penalties: Employers who willfully or repeatedly misclassify employees as exempt may face civil penalties of up to $1,000 per violation. These penalties can accumulate if multiple employees are affected. 

• Criminal prosecution: In extreme situations, criminal prosecution may be pursued against employers who consistently violate the rule. 

• Unpaid overtime liability: Employers who have misclassified employees as exempt may be liable for all unpaid overtime owed to the employee for up to three years before the employee’s claim. This liability can result in substantial financial obligations. 

• State-specific penalties: Employers should also be aware of potential state-imposed penalties if misclassification violates state or local wage and hour laws. 

Employers should review their practices, adjust salaries, and ensure accurate classification to mitigate risks. If an employer discovers a misclassification issue related to the final rule, we recommend taking the following steps: 

• Assess the situation: Identify which employees are affected and the extent of the issue. 

• Correct the classification: If misclassified employees' salaries fall below the new thresholds, reclassify them as non-exempt. Update job descriptions and records accordingly. 

• Calculate back pay: Determine the unpaid overtime owed to affected employees. Calculate back pay for up to three years (as allowed by the statute of limitations). 

• Communicate transparently: Inform affected employees about the correction and explain the reasons for the reclassification and the impact on their pay. 

• Adjust compensation: If feasible, consider raising salaries to meet the new thresholds. Alternatively, prepare to pay overtime for hours worked beyond 40 per week. 

• Review policies and practices: Evaluate internal policies and practices to prevent future misclassifications and train HR personnel and managers on proper classification guidelines. 

• Legal consultation: Seek legal advice to help comply with federal and state regulations and consult with employment attorneys to minimize legal risks. 

The DOL’s final rule significantly expands the overtime pay requirement and could impact how some employers classify and compensate employees. Employers should review their workforce and take necessary steps to comply with the updated regulations, as proactive steps can prevent costly consequences. Remember, accurate information and compliance are crucial.