New Federal Law Allows More Exempt Employees to Receive Overtime Compensation
More salaried employees qualify for overtime!
New minimum compensation requirements are in effect!
The rules for payment of overtime to salaried employees recently changed on July 1, 2024. The Federal Fair Labor Standards Act (FLSA) requires that all employees who work over 40 hours in one work week be paid overtime compensation. However, salaried employees who primarily perform executive, administrative, or professional duties and previously earned more than $35,568 a year (or $684 per week) were not entitled to overtime compensation.
The new rule, which took effect on July 1, 2024, now states that any salaried workers who earn less than $43,888 (or $844 per week) are entitled to overtime pay for any hours worked beyond 40 hours per week. Under the new rule, the threshold will increase for the first time on January 1, 2025 and will be scheduled to increase every three years thereafter. On January 1, 2025, any salaried employees who earn less than $58,656 a year (or $1,128 per week) will be entitled to overtime pay. In creating a higher threshold, the Department of Labor estimates that approximately 4 million previously exempt workers will be eligible for overtime pay.
Under the new law, the affected employees’ duties will likely not have changed at all. Rather, the only reason for their new found entitlement to overtime compensation will be the Department of Labor’s arbitrary decision to increase the minimum salary threshold for exempt employees. Clearly, this new law flies in the face of the FLSA’s functions and duties test, which states that whether or not the employee falls under the executive, administrative, or professional exemption depends on the employee’s function and duties- not the employee’s salary. Employees who fall under the exemption are expected to work to fulfill their function and duties regardless of the number of hours worked because they are paid on a salary basis.
The state of Texas has recently filed for (and received) a preliminary injunction preventing the new overtime rule from applying to Texas as a government employer. The state of Texas is arguing that the DOL should not impose a salary minimum for the exemption. Rather, Texas reiterates the FLSA’s functions and duties test, adamantly arguing that whether or not employees are exempt from overtime should turn solely on the employee’s functions and duties – not salary.
It will be interesting to see what happens in Texas. In the meantime, employers should be aware of the increase in threshold, which will result in many more previously exempt employees receiving overtime compensation.