Recruiters should be aware of new overtime laws which have taken effect this past July 1^st. The US Department of Labor increased the minimum salary threshold on standard salary overtime pay from $684/wk. or $35,568/yr. to $844/wk. or $43,888/yr. This article will give a brief recap of the new legislation and alert you to pitfalls to avoid. According to a news release from the Department of Labor¹ (DOL), “this rulemaking updates and revises the regulations for determining whether certain salaried employees are exempt from minimum wage and overtime requirements under section 13(a)(1) of the Fair Labor Standards Act (FLSA). 

The DOL goes on to explain what determines if an employee falls within the executive, administrative, or professional (EAP) Exemption:

Currently, to fall within EAP Exemption, an employee generally must:

· be paid a salary, meaning that they are paid a predetermined and fixed amount that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”),

· be paid at least a specified weekly salary level (the “salary level test”),

· and primarily perform executive, administrative, or professional duties, as provided in the Department’s regulations (the “duties test”).

Certain employees, such as doctors, lawyers, teachers, and outside sales employees, are not subject to either the salary basis or salary level tests; employees in these occupations may fall within the EAP exemption regardless of how and what they are paid. The Department’s regulations also provide an alternative test for certain highly compensated employees (“HCEs”) who are paid a salary, earn at least a higher total annual compensation level, and satisfy a minimal duties test.

And what are the estimated financial impacts? The Department of Labor “estimates that in Year 1, the rule will impose approximately $1.4 billion of direct costs on employers.” Further the DOL estimates that “in the first year …4.0 million workers exempt under the current regulations who earn at least the current weekly salary level of $684 but less than $1,128 will, without some intervening action by their employers, become newly entitled to overtime protection under the FLSA.”

A key question is: “Must salaried employees earning below the new salary level be converted to hourly pay?” The DOL notes that “salaried workers earning below the new salary threshold may continue to be paid a salary, as long as that salary is equivalent to a base wage at least equal to the minimum wage rate for every hour worked, and the employee receives a 50% premium on that employee’s regular rate for any overtime hours each week.”

The Department noted various options that employers have to respond to the updated thresholds established in this final rule:

“For each employee who is affected by the increased earnings threshold, an employer may:

increase the salary of the employee to at least the new salary level to retain their exempt status,

pay an overtime premium of one and a half times the employee’s regular rate of pay for any overtime hours worked,

reduce or eliminate overtime hours,

reduce the amount of pay allocated to the employee’s base salary (provided that the employee still earns at least the applicable hourly minimum wage) to offset new overtime pay, 

or use some combination of these responses.

The FLSA does not restrict when or where work may be performed, and there is no requirement that a worker must have a predetermined schedule.

The FLSA applies to most businesses. Generally, the FLSA and the Department’s implementing regulations apply to employees of enterprises that have an annual gross volume of sales made or business done of $500,000 or more, and certain other businesses. The Department has provided a small business compliance guide for the new rule.”

The scheduled increases are detailed in the chart below:

Andy Medici² of The Playbook noted that “the changes, which are opposed by a number of business groups, could significantly increase costs for businesses and make millions of salaried workers newly eligible for overtime pay. The salary threshold then would update every three years based on wage data, according to the Department of Labor.

Essentially, businesses will have to raise the salaries of workers who are currently working for less than the new threshold to avoid paying overtime - or, instead, institute overtime pay for those employees, which means paying them time and a half for every hour above 40 hours per week.”

Andy further noted that if employees get certain types of bonuses or commissions, those must be factored into the rate of pay for overtime calculations.

The new overtime rule also contains provisions requiring employers to:

Expand overtime protections for lower-paid salaried workers.

Better identify workers who are executive, administrative, or professional and who are thus not eligible for overtime.

Ensure that those employees who are not exempt receive time-and-a-half pay when working more than 40 hours in a week or gain more time off.”

States which have daily overtime rules include: Alaska, California, Colorado, and Nevada.³

Recruiters should always be aware of the overtime laws in the jurisdiction in which the employee works. Communicate these new rules to your clients to make sure they are fully informed. 

¹ The Department of Labor, “Frequently Asked Questions - Final Rule: Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees.”

² Andy Medici, The Playbook, The Business Journals, June 17, 2024.

³ Wrapbook, “2024 Minimum Wage & Overtime Laws by State” January 16, 2024.