New Overtime Pay Requirements for Salaried Employees: What You Need to Know

Do Your Salaried Employees Now Require Overtime Pay?

The U.S. Department of Labor’s (DOL) new rule increasing the salary level for determining overtime pay requirements for certain salaried employees went into effect on July 1.

Under the final rule, salaried workers — which often include construction supervisors — earning less than the finalized standard salary levels per year will be eligible to receive the standard overtime rate for hours worked more than 40 in a work week.

Who is no longer exempt?

According to the DOL, workers categorized as executive, administrative or professional employees earning less than $43,888 annually will be eligible for overtime pay. The test qualifications for these individuals are as follows.

Executive – To qualify for the executive employee exemption, all of the following tests must be met:

• The employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than $684* per 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.
• 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 – To qualify for the administrative employee exemption, all of the following tests must be met:

• The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $684* per 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.
• The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

Professional – To qualify for the learned professional employee exemption, all of the following tests must be met:

• The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $684* per 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.
• The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

Additionally, the salary level will increase to $1,128 per week or $58,656 on Jan. 1, 2025, marking a nearly 65 percent increase from the current salary threshold of $35,568. Beginning July 1, 2027, salary levels will update every three years using up-to-date wage data.

What does this mean for your company?

Every company needs to evaluate how the final rule impacts their businesses, according to Jami Musselman with Bukaty Companies. Bukaty Companies is an employee benefits and insurance brokerage firm in Kansas City with 30 years of experience in the insurance industry. Bukaty suggests taking the following steps to ensure compliance:

• Identify the current exempt positions that fall below the proposed annual $43,888 ($844 per week) threshold. 
• Confirm your exempt positions still meet the DOL requirement to qualify for an overtime exemption, including:
  • Paid on salary basis.
  • Paid based on the current salary threshold of $684* per week or $35,568 annually.
  • Perform duties that qualify for the administrative, executive or professional DOL exemption.
• Calculate the financial impact of any salary adjustments needed to retain the overtime exemption.
• Evaluate the financial impact of changing positions to a non-exempt status and the consequences of paying overtime.

“The new overtime rate seems straightforward, but it’s more complicated in the context of the allowed exemptions,” said Rachel Gast, director of Bukaty’s HR Consulting team. If you have questions about complying with this regulation, contact our Bukaty consultant Jami Musselman at jmusselman@bukaty.com. 

“There are some additional and rarer exceptions to the salary threshold for outside sales, variable compensation positions with commissions or bonuses, and highly compensated workers,” said Gast. “The ‘fine print’ of the salary exemption rules really illustrates that each person’s role and pay structure should be evaluated on a case-by-case basis.”

One June 28 a federal district judge in Texas granted the state’s motion for an injunction to postpone the overtime rule effective date. Consequently, the state of Texas is the only U.S. state where the overtime rule is on hold for now. 

*Note: Amounts listed will be adjusted by the DOL to reflect the required $844 a week that went into effect July 1, 2024.