US DOL Raises Overtime Salary Threshold

The U.S. Department of Labor issued a final rule April 23 that raises the overtime salary threshold in two stages.

Beginning July 1, 2024, employers must pay overtime to salaried workers who earn less than $43,888 a year in certain executive, administrative, and professional roles.

The threshold will increase to $58,656 Jan. 1, 2025. Beginning July 1, 2027, salary thresholds will update every three years.

The current salary threshold of $35,568 annually, or $684 weekly, was set by the Trump administration in 2020.

In 2017, a federal judge struck down an Obama administration rule that raised the threshold to $47,476. 

The new rule also expands overtime eligibility for some highly-compensated workers, with the current $107,432 annual threshold for those employees to increase to $132,964 July 1 and $151,164 in 2025.

Employer Options

DOL officials estimated that an additional four million more workers will qualify for overtime after Jan. 1, costing employers an estimated $1.5 billion annually, including over $450 million in compliance costs.

Salaried workers earning below the new threshold can continue to be paid a salary, as long as it’s equivalent to a base wage at least equal to the federal hourly minimum wage of $7.25 and the employee receives a 50% premium for overtime.

DOL officials estimated that an additional four million more workers will qualify for overtime after Jan. 1.

According to the agency, employers have a range of options for addressing the increased overtime salary thresholds.

Employers can increase an employee’s salary at least to the new level to retain their exempt status, or use some combination of the following:

• Pay an overtime premium of one and a half times the employee’s regular rate of pay
• Reduce or eliminate overtime
• Reduce the amount of pay allocated to the employee’s base salary (provided that the employee still earns at least the federal hourly minimum wage)

FLSA

Unless exempt, employees covered by the Fair Labor Standards Act must receive overtime pay for all weekly hours over 40 at a rate not less than one and one-half times their regular pay rate.

Based on DOL guidance, employers may be more likely to give raises to employees who regularly work overtime and earn slightly below the new standard salary level to maintain their exempt status.

Employers may also choose to pay the overtime premium for employees who rarely work overtime hours.

Non-discretionary bonuses and incentive payments, including commissions, can satisfy up to 10% of the standard salary test requirement, as long as those payments are paid at least annually.

Legal Challenges

Legal challenges to the final rule are expected—the 2017 court decision came just days before that rule was due to take effect.

The National Association of Manufacturers said the rule “will complicate manufacturers’ efforts to fill the millions of jobs our industry is projected to create within a decade.”

“Quarter after quarter, manufacturers cite workforce issues, such as attracting and retaining skilled employees, as their biggest business challenge,” NAM vice president Chris Netram said in a statement.

Legal challenges to the final rule are expected—the 2017 court decision came just days before that rule was due to take effect.

“Yet today’s rule places new constraints on employers, reduces flexibility for the workers who will be reclassified and may force companies to make painful choices that limit both job creation and growth opportunities available to employees.”

CBIA HR Counsel Diane Mokriski suggests employers review salary structures and classification policies to prepare for complying with the rule.

“Employers may want to plan for implementing the rule while delaying action until it is clear that the rule will take effect as scheduled,” she said.