One of the fundamental principles of the American workplace is that a hard day’s work deserves fair pay. The Fair Labor Standards Act (FLSA) ensures that most workers who put in over 40 hours a week receive overtime pay. The Department of Labor’s (DOL) new overtime regulations are extending this promise to millions more salaried workers in the U.S.

Historical Context and Current Changes

Overtime entitlements have been a key part of the FLSA since 1938, helping to prevent worker exploitation and support the growth of the middle class. While some employees—such as bona fide executive, administrative, or professional (EAP) workers—are exempt from these protections, the criteria for exemption have not kept pace with inflation and wage growth over the decades.

The new DOL rule, effective July 1, 2024, updates the salary threshold for overtime exemption for the first time in several years. Here’s a quick breakdown of the changes:

1. Current Threshold: To be exempt from an entitlement to overtime pay, workers must meet certain duties tests developed under the specific exemptions and be paid at least $684 per week on a salary basis.
2. July 1, 2024: The threshold increases to $844 per week.
3. January 1, 2025: The threshold rises again to $1,128 per week.
   

In addition to these increases, the salary threshold for highly compensated employees (who are also exempt from overtime pay if they meet specific criteria) will rise from $107,432 to $132,964 per year on July 1, 2024, and to $151,164 per year on January 1, 2025.

Starting July 1, 2027, these thresholds will be updated every three years to reflect current wage data, ensuring they remain relevant and effective.

Impact on Workers and Employers

This rule aims to restore overtime pay rights to many salaried workers who have historically been entitled to such pay. For example, a worker earning around $40,000 a year and often working 45-50 hours a week will now be entitled to overtime pay under the FLSA.

Employers have two options:

1. Raise salaries to meet the new thresholds, thus maintaining the exemption status
2. Reclassify employees as non-exempt, making them eligible for overtime pay
   

While the two-step approach to raising the salary thresholds (July 2024 and January 2025) gives employers time to adjust, it also means they need to plan carefully. Employers might choose to handle both increases at once to avoid repeated adjustments.

Automatic Adjustments and Ongoing Challenges

One notable feature of the new rule is the automatic adjustment every three years. While this aims to keep the thresholds in line with economic conditions, some organizations, like the Society for Human Resource Management (SHRM), advocate for a more tailored approach and oppose automatic increases.

The final rule is expected to bring about significant changes, potentially affecting around four million workers. While it may present challenges for employers, especially small businesses, it aims to ensure fair compensation for all workers.

Preparing for the Change

Employers should start preparing now by reviewing the salaries of exempt employees and deciding on the best approach to comply with the new thresholds. Training and clear communication will be crucial for managing employee transitions from exempt to non-exempt status.

For workers, this change is a step toward ensuring their hard work is valued and fairly compensated, reinforcing the principle that every worker’s time has value.

Additionally, a legal challenge has been filed seeking to set aside this new DOL rule. In Plano Chamber of Commerce v. U.S. Department of Labor, filed in the Eastern District of Texas, the business group plaintiff contends that the DOL exceeded its authority in announcing the new rule. The plaintiff also seeks a delay of implementation of the July 1 increase. At this point, it is impossible to determine how the ongoing litigation will affect, if at all, the salary threshold increases.  

Stay Informed: For more details, visit DOL’s Overtime Information Page.

This blog was authored by Earl Cantwell, Acting General Counsel, Aleron Group.