We are providing an update to our April 10 article regarding plans to increase the salary threshold for overtime-exempt employees, because on April 23 the Department of Labor released its final rule, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees. The final rule will be published in the Federal Register on April 26, 2024.

Effective July 1, 2024, most salaried workers who earn less than $844/week ($43,888/year) will be entitled to overtime. This threshold will increase to $1,128/week ($58,656/year), effective January 1, 2025. Beginning July 1, 2027 and every three years thereafter, the thresholds will be subject to updates based on current earnings data. The final rule also increases the standard salary level for highly compensated employees to qualify for overtime exemption.

Chart courtesy of U.S. Dep’t of Labor, Wage & Hour Division, https://www.dol.gov/agencies/whd/overtime/rulemaking?_ga=2.153237180.569152583.1713909401-1617273642.1692129444

Salaried workers who earn more than the salary threshold may still be eligible for overtime pay if they do not also fit the Fair Labor Standards Act duties test for staff employed in bona fide executive, administrative, or professional positions (sometimes referred to as the EAP exemptions). These earnings thresholds do not apply to certain types of employees, including doctors, lawyers, teachers, and outside sales employees.

This rule will certainly face challenges in the courts as business groups decry the increased operating costs. A similar 2016 Obama-era rule was overturned on the ground that the Labor Department had exceeded its rule-making authority. Nonetheless, employers should not count on a court putting a halt to the rule before the July 1, 2024, effective date. Although Washington and California already have salary thresholds higher than the new federal minimums, Oregon does not, so in-state employers should start preparing immediately. Put together a list of your current salary-exempt employees who earn between $35,568 and $58,656; you will have to decide whether to raise their salary or convert them to non-exempt status.

This presents an excellent opportunity to take a fresh overall look at your job descriptions and exemption determinations. Employers may want to consider contacting their local counsel to assist with formulating a compliance strategy.