Navigating the New Overtime Salary Threshold: A Guide

The landscape of employee compensation is set for a significant shift with the Department of Labor (DoL) gearing up to introduce changes to the overtime salary threshold. This change will redefine who is eligible for overtime pay, expanding coverage to millions of additional American workers. It’s a pivotal moment for both businesses and employees to understand and prepare for these adjustments.

On April 26, 2024, the U.S. Department of Labor (DOL) published the much-anticipated final rule that will increase the minimum salary for many exempt employees. The increase will take effect in two steps. If you’d like to review the regulations yourself, they are available here—the relevant changes start on page 130 of the downloadable PDF.

Executive, Administrative, and Professional Employees

Under the new rule, exempt executive, administrative, and professional employees (often referred to collectively as “EAP” employees) must be paid at least:

• $844 per week ($43,888 per year) beginning on July 1, 2024
• $1,128 per week ($58,656 per year) beginning on January 1, 2025

Exceptions

Teachers and practicing doctors and lawyers are exempt from these minimum salary requirements under federal law but may be subject to different state minimums. School-specific minimums apply to academic administrative employees.

Computer Employees

Exempt computer employees can be paid on a salary or hourly basis. If salaried, they’re considered part of the EAP group and need to make the minimums listed above. Alternatively, they can be paid at least $27.63 per hour—this hourly rate was not changed by the rule.

Highly Compensated Employees (HCE)

Employees who are exempt under the HCE exemption must be paid at least the minimums listed above on a salary basis and receive total annual compensation of at least:

• $132,964 per year beginning July 1, 2024
• $151,164 per year beginning January 1, 2025

State Law

As usual, if a state law requires higher minimum salaries than what is required by the federal rule, the state minimums must be followed.

Future Increases

The rule implements automatic updates to the minimum salary levels every three years starting July 1, 2027. We don’t know what the future minimums will be, but employers will have at least 150 days’ notice before those changes take effect.

Potential Challenges

The last time the DOL attempted a significant change to the salary minimums, the rule was challenged and ultimately blocked just weeks before taking effect. While we have no way of predicting if that will happen again, it’s very likely that this final rule will be litigated.

What To Do Now

Employers have the following options:

1. Ensure that salaried exempt employees make at least the new minimum salary required for their classification.
2. Reclassify currently exempt employees as nonexempt and provide them with the rights and benefits that nonexempt employees are entitled to (e.g., minimum wage and overtime pay).

The upcoming changes to the overtime salary threshold represent a significant shift in how businesses compensate their employees. By taking proactive steps now, businesses can ensure they remain compliant, manage their labor costs effectively, and continue to operate smoothly. For employees, these changes offer the prospect of fairer compensation for overtime work, aligning more closely with the demands of today’s labor market.

This article does not constitute legal advice. For additional information please also reference related articles in your APlus HR resource center or ask your friendly APlus CSS about our On-demand HR live advice line where, for a small fee, you can be connected to a certified HR advisor.