New Department of Labor Overtime Rule Goes into Effect July 1, 2024. . .With More Changes in the Pipeline

​By Attorney Kelly Jesson

Last month, the Department of Labor issued its final rule regarding changes in the overtime laws for “white collar” exempt employees. Before discussing this change, here is some background on the law.

Federal law states that every employee must be paid at least minimum wage and overtime if they work more than 40 hours per week unless they fall under an exemption.  The two types of exemptions we discuss here are: (1) bona fide executive, administrative, professional, or computer employee capacity; and (2) highly compensated employees.  Outside sales rules were not touched.

To fall under the bona fide executive, administrative, or professional, the worker must: (1) 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; (2) be paid at least $684 per week (equivalent to $35,568 per year); and (3) primarily perform executive, administrative, or professional duties.

These duties are not what you might think!  Administrative does not mean clerical.  For the administrative exemption to apply, 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; and the employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

For the executive exemption to apply, the employee’s primary duty must be managing the enterprise or a department or subdivision of the enterprise; the employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and the employee must have the authority to hire or fire other employees or make recommendations as to the hiring or firing of others.

For the professional exemption to apply, the employee’s primary duty must be the performance of work requiring advanced knowledge, predominantly intellectual in character which requires the consistent exercise of discretion and judgment; the advanced knowledge must be in a field of science or learning; and the advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

For the computer employee exemption to apply, the employee must be a computer systems analyst, computer programmer, software engineer or other similarly skilled worker whose primary duties consist of the application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications; 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; or the design, documentation, testing, creation or modification of computer programs related to machine operating systems.

Prior to July 1, 2024, if you are or have an executive, administrative, professional, or computer employee and they are NOT making $684 per week ($35,568 annually), they are NOT exempt and you must pay them overtime.  Computer employees can satisfy the salary test if they are paid $27.63.   Employers can satisfy up to 10% of the salary level through the payment of nondiscretionary bonuses and incentive payments (including commission) paid annually or more frequently.

Starting July 1, 2024, that threshold number is increasing to $844 per week ($43,888 annually).  That means if you are a business owner and you are classifying employees as exempt based on this exemption, you need to evaluate what you are paying them and potentially start paying overtime or provide them with a raise to remove the overtime requirement.  Starting January 1, 2025, the minimum salary threshold will increase again to $1,128 per week ($58,656 annually)!  This is a huge jump in less than a year!  But remember, this exemption does not apply to clerical workers because they are not exempt from overtime anyway.  The $27.63 still applies to computer employees, and employers can still satisfy the salaries with qualifying commissions and bonuses.

Currently, highly compensated employees performing office or non-manual work and paid total annual compensation of $107,432 or more (which must include at least $684 per week paid on a salary or fee basis) are exempt if they customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee identified in the standard tests for exemption.  On July 1, 2024, the threshold for this exemption will rise to $132,964!  January 1, 2025, it goes up to $151,164. 

Lastly, starting July 1, 2027, the salary thresholds will update every three years using current wage data to determine new salary levels.

These are the general rules.  There are exceptions for certain blue collar workers, teachers, academics, lawyers, doctors, etc. and also exceptions for certain U.S. territories. Please contact Jesson & Rains to discuss how this law change might affect you.