CHANGES TO FEDERAL OVERTIME RULES

Executive, Administrative and Professional Exemptions

Yesterday the U.S. Department of Labor (DOL) issued new rules to take effect on July 1, 2024, increasing the minimum salary requirements for employees to be eligible for the executive, administrative, and professional exemptions from overtime pay under the Fair Labor Standards Act (FLSA).   The changes are, as of:

*July 1, 2024, to $844 per week from $684 per week  (or $43,888 annually, currently $35,568 annually); and
*Jan. 1, 2025, to $1,128 per week (or $58,656 annually).

The Highly Compensated Employee Exemption
The new rule also impacts the exemption for highly compensated employees (HCE). An HCE is currently deemed exempt from the payment of overtime under the FLSA if:

*The employee earns total annual compensation of $107,432 or more, which includes at least $684 per week paid on a salary or fee basis; and
*The employee’s primary duty includes performing office or non-manual work; and
* The employee customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee.

Thus, for example, an employee may qualify as an exempt HCE if the employee customarily and regularly directs the work of two or more other employees, even though the employee does not meet all of the other requirements in the standard test for exemption as an executive.

The total annual compensation level for the HCE exemption will increase from its current $107,432 per year as of:

*July 1, 2024, to $132,964 per year; and
*Jan. 1, 2025, to $151,164 per year.

The DOL plans on increasing the salary amount every three years beginning July 1, 2027, absent unforeseen economic or other conditions.

So, are you telling us more people are going to be overtime eligible?
Yes, that is exactly what we are saying.

How do we calculate the annual or weekly salary?  What is included?
An employee’s regular rate of pay for overtime purposes is not simply the employee’s hourly rate of pay, annual salary, or weekly salary. Under the FLSA, an employee’s regular rate of pay is based on “all remuneration” earned from employment (with some specific exceptions, such as vacation pay or 401(k) contributions). This can include non-discretionary bonuses, commissions, shift differentials, and can even include some non-cash payments depending on the circumstances.

To calculate the overtime premium for an employee paid on an annual salary basis, divide the annual salary by 52 (weeks) to calculate the employee’s weekly salary. Add in any other compensation paid during that pay period. Divide the weekly salary and any additional compensation by the number of hours worked in the workweek. This is your regular hourly rate for this workweek. You then need to calculate the overtime hourly rate. Because you have already accounted for the overtime hours once in calculating the regular hourly rate, you will need to multiply the regular hourly rate by 0.5 (instead of 1.5) to get the overtime hourly rate. You then multiply the overtime hourly rate by the number of hours worked in the pay period over 40 hours and add that to the employee’s compensation for the workweek.

To calculate the overtime premium for an employee paid based on a weekly salary basis, take the weekly salary and add in any other compensation paid during that pay period. Divide the weekly salary and any additional compensation by the number of hours worked in the workweek. This is your regular hourly rate for this workweek. You then need to calculate the overtime hourly rate. Because you have already accounted for the overtime hours once in calculating the regular hourly rate, you will need to multiply the regular hourly rate by 0.5 (instead of 1.5) to get the overtime hourly rate. You then multiply the overtime hourly rate by the number of hours worked in the pay period over 40 hours and add that the employee’s compensation for the workweek.

What do we do now?
Develop a strategy to make any necessary changes to workforce and your budgets by the July 1, 2024, deadline. Such strategies could include:

• Identifying those currently exempt employees who do not satisfy the $844 weekly minimum salary threshold;
• Making sure these employees meet the job duties tests to qualify for the executive, administrative, professional or outside sales employees’ exemptions;
• Tracking these employees’ hours worked so you can make a decision on whether to either
  • increase salaries for those employees to meet the new threshold on July 1, 2024, or
  • keep the employees at the same pay rate and pay the overtime premium if they work over 40 hours in a pay period paid, or
  • ensure those employees work no more than 40 hours in one workweek.