Attention Employers: New overtime rules became effective July 1, 2024

New overtime rules now in effect

As part of an effort to prevent employers from categorizing employees as salaried in order to circumvent overtime regulations, the US Department of Labor has enacted new Fair Labor Standards Act (FLSA) thresholds required for certain employees to be deemed exempt from overtime rules. Most employers are subject to the FLSA rules.

These new thresholds became effective on July 1, 2024 (with the exception of certain areas of Texas where the law has been challenged and an injunction entered). The new exemption thresholds will affect millions of workers who will now likely become eligible for overtime wages. Most people know that under overtime rules, an employee is entitled to 1.5 times their normal hourly wage for all hours worked beyond 40 in a work week. That is unless the employee falls under an exemption to the overtime rules.  

White Collar Exemption

One of the exemptions is called a “white collar” exemption — these are for administrative, executive, professional, and certain specific other employees. The salary threshold for an employee to potentially qualify as exempt prior to July 1, 2024, was $684/week or $35,568 annualized. The new rule, effective July 1, 2024, raised the threshold to $844/week or $43,888 annually. The salary threshold will again rise on January 1, 2025, to $1,128/week and $58,656 annually. There is also a mechanism to increase the exemption threshold every three years, beginning July 1, 2027.

Below are the various types of “white collar” employees and the definition of what it means for them to qualify as “exempt” under the law:

Executive Employee Exemption

For an executive employee to qualify for the exemption from overtime rules, the following facts must exist:

• The employee must be paid the existing minimum salary under the FLSA (now $844/week);
• The employee’s primary duty must be managing the enterprise or managing a customarily recognized 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 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 Exemption 

For an administrative employee to qualify for the exemption from overtime rules, the following facts must exist:

• The employee must be paid the existing minimum salary under the FLSA (now $844/week);
• 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.

Professional Exemption

For a professional employee (learned or creative) to qualify for the exemption from overtime rules, the following facts must exist:

Learned Professional

• The employee must be paid the existing minimum salary under the FLSA (now $844/week);
• 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; and
• The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

Creative Professional

• The employee must be paid the existing minimum salary under the FLSA (now $844/week);
• The employee’s primary duty must be to perform work that requires invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.

Computer Employee Exemption

For a computer employee to qualify for the exemption from overtime rules, the following facts must exist:

• The employee must be compensated either on a salary or fee basis (as defined in the regulations) at a rate not less than $844 per week or, if compensated on an hourly basis, at a rate not less than $27.63 an hour;
• 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:

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; or
4. A combination of the duties mentioned above, the performance of which requires the same level of skills.

Highly Compensated Employee Exemption 

The FLSA also has a catchall exemption for what are called HCEs (“Highly Compensated Employees”). For an HCE to qualify for exemption from overtime rules, the following facts must exist:

• The employee must be paid $132,964 (total compensation) as of July 1, 2024, of which $844/week must be base salary;
• The HCE must 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.

Determining whether an employee qualifies as exempt is very fact-driven and worth examining whether your employees’ actual work duties (versus the paper job description) qualify them for exemption from overtime. It is also worth noting that “blue collar” employees of basically any type are not exempt under any of these provisions. Finally, there is also an exemption for outside sales employees, but that exemption is beyond the scope of this article. If you have employees who you think might be considered outside sales, you should ensure they qualify as exempt from overtime by contacting your lawyer to examine the facts.

New rule already in effect

As noted above, the base salary/wage amounts will increase again on January 1, 2025, so you should calendar those dates to prepare. There are some pending lawsuits alleging that the Department of Labor lacked the authority to impose these new thresholds, but other than the areas in Texas, this rule is in place TODAY! If you have questions, do not hesitate to call.