Coming Soon: New Federal Overtime Rule

The White House Office of Information and Regulatory Affairs (OIRA) completed its review of the updated federal overtime rule on April 10, 2024. We can expect publication of the final rule in the Federal Register any day now, with an effective date likely 60 days after publication.

If the final rule tracks the agency’s proposed rule from last fall, it will bump the minimum salary for exemption as executive, administrative, or professional (“EAP”) employee from $684 per week ($35,568 annualized) to $1,059 per week ($55,068 annualized) and the minimum total annual compensation level for exemption as a “highly compensated employee”—e.g., one who customarily and regularly performs any one or more of the exempt duties or responsibilities of an EAP employee—from $107,432 to $143,988.

In addition, if finalized as proposed, the rule would require automatic increases in those thresholds every three years.

Other than in states with already-higher minimum salaries for exemption (which include California and, for certain types of employees, New York)–and absent a successful legal challenge to the new rule–employers will be required to pay most executive, administrative, and professional employees at least $1,059 per week. Is your business ready for the change?

• Have you prepared a list of potentially impacted employees?
• Have you compared the cost of increasing their salaries to the new minimum with the cost of keeping their salaries where they are and paying for overtime?
• If you raise salaries to the new minimum, have you considered whether you still have a “duties test” risk?
• If you reclassify certain employees to overtime-eligible, are your supervisors ready to manage the attendant overtime costs? Do they understand what kinds of hours are considered “hours worked” (e.g., certain travel time, time spent working from home or remotely, etc.)?
• Have you considered the alternatives to paying reclassified employees on an hourly basis?
• Do you understand what kinds of compensation will have to be included in the “regular rate of pay” for overtime purposes?

We’ll report on the final rule when it’s released and track any court challenges. But for the moment, it’s time to figure out what the new federal overtime might mean to your business.