New Overtime Salary Rules Demand Employer Action Before July 1

The minimum salary employees must earn to maintain overtime pay exemptions will rise significantly on July 1, 2024. Earlier this year, the U.S. Department of Labor’s final rule increased the minimum weekly salary needed to qualify for the executive, administrative, professional and computer employee overtime exemptions. Employers who have not already evaluated their exempt employees and made any necessary adjustments have only a short amount of time to comply with the new rule.

Unless covered by an exemption, employers must pay overtime pay—generally at the rate of one and one-half the employee’s regular pay rate—for any hours worked in excess of 40 in a workweek. To qualify for one of the foregoing exemptions, the employee must satisfy the job duties test of the applicable exemption and be paid at least the minimum weekly salary. The current minimum salary is $684 per week ($35,568 annually). The DOL increased that amount to $844 per week ($43,888 annually), effective July 1, 2024. The minimum will rise again to $1,128 per week ($58,656 annually) on Jan. 1, 2025. The new rule also creates a procedure to increase the salary minimum every three years. 

In addition to the salary rule, the “white collar” exemptions have the following duties tests. An employee must meet all factors of the duties test to qualify for an exemption.

Executive:

• The employee’s primary duty must be managing the business or managing a customarily recognized department or subdivision of the business.
• The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent.
• The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

Administrative:

• The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers.
• The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

Professional:

• The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character, and which includes work requiring the consistent exercise of discretion and judgment.
• The advanced knowledge must be in a field of science or learning..
• The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

Computer Employee:

• The employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the duties described below.
• The employee’s primary duty must consist of at least one of the following:

1. 1. The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications.
   2. The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications.
   3. The design, documentation, testing, creation or modification of computer programs related to machine operating systems.
   4. A combination of the aforementioned duties, the performance of which requires the same level of skills.

There is also an exemption for “highly compensated employees.” These employees customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee and are paid total annual compensation above a minimum amount. That annual minimum was $107,432 but rises to $132,964 on July 1, 2024. That minimum also increases again on Jan. 1, 2025, to $151,164.

If they have not done so already, employers should identify any currently exempt employees who currently make less than the increased weekly salary minimum ($43,888 annually). For any employee who falls under that minimum, employers should then decide if they want to increase the employee’s salary to maintain the exemption (recognizing there is another even larger increase required by Jan. 1, 2025) or change the employee’s classification to non-exempt. If the employer decides to do the latter, the employer must begin to track and manage the employee’s work hours for overtime pay. It is also a good idea during this process for employers to evaluate and confirm that all employees who are designated as exempt still satisfy the job duties test for their applicable exemption.

The DOL’s final rule has been subject to multiple legal challenges, so it is possible it could be stayed or struck down by a court before July 1, 2024. Prudent employers should not rely on that possibility and should take the opportunity to prepare as if the rule will become effective.

Please contact Michael E. Turner or any member of Phelps' Labor and Employment team if you have questions or need advice or guidance.