The U.S. Department of Labor’s new federal overtime threshold rule, set to take effect on July 1, 2024, significantly changes the Fair Labor Standards Act (FLSA).  This rule aims to expand overtime pay eligibility, impacting millions of American workers and their employers.  Understanding these changes is crucial for compliance and ensuring fair compensation practices.

Key Changes in the New Federal Overtime Rule

Salary Threshold for Overtime Exemption

Under the new rule, the salary threshold for exempt employees—those not eligible for overtime pay—will increase.  Previously, employees needed a minimum salary of $684 per week ($35,568 annually) to be classified as exempt.  The new rule raises this threshold to $844 per week ($43,888 annually) starting July 1, 2024.  This amount increases to $1,128 per week ($58,656 annually) starting January 1, 2025.  Employees earning less than this amount must be paid overtime (1.5 times their regular rate) for hours worked over 40 in a workweek.

Highly Compensated Employees

The salary threshold for highly compensated employees (HCEs) is also increasing. The previous threshold was $107,432 per year. Starting July 1, 2024, this threshold will rise to $132,964 per year and $151,164 per year starting January 1, 2025. HCEs who earn below this amount must receive overtime pay if they do not meet specific job duty requirements.

Automatic Updates

The new rule includes provisions for automatic salary threshold updates every three years to keep up with inflation and changes in the cost of living. This element is new to overtime-exempt provisions and will be set based on data published by the U.S. Bureau of Labor Statistics.

States with Higher Thresholds than the New Federal Rule

While the federal rule sets the baseline for overtime eligibility, states can impose more stringent regulations.  California, New York, and Washington have higher overtime exemption thresholds.

California Overtime Exempt Rule

In California, the overtime exemption thresholds are significantly higher than the federal levels:

  • Minimum Salary Threshold: As of January 1, 2024, to qualify for executive, administrative, and professional exemptions, employees must be paid twice the state minimum wage.  The current California minimum wage is $16/hour, so the threshold is $32/hour for a 40-hour workweek or $1280 per week.  This threshold translates to an annual salary of $66,560.
New York Overtime Exempt Rule

The New York overtime exempt threshold for salary basis applies to executive and administrative employees.  As of December 31, 2023, it depends on the location:

  • New York City and surrounding counties (Nassau, Suffolk, and Westchester): $1,200 per week (around $62,400 annually) Source: Ogletree Deakins “[Reminder for New York State Employers: Salary Basis Thresholds Increased for 2024
  • Rest of New York State: $1,124.20 per week (around $58,458.40 annually) Source: Ogletree Deakins “[Reminder for New York State Employers: Salary Basis Thresholds Increased for 2024
Washington Overtime Exempt Rule

Washington’s Overtime Exempt Threshold started at 1.25 times the minimum wage for all employers in 2020, and it will scale to 2.5 times the minimum wage for all employers in 2028. 

  • Minimum Salary Threshold: As of January 1, 2024, all employees must earn at least 2 times the state minimum wage to be overtime exempt.  Washington’s minimum wage for 2024 is $16.28 per hour, which amounts to an annual salary of approximately $67,724.80.

Preparing for the New Federal Overtime Rule

Employers must take several steps to ensure compliance with the new federal overtime rule:

  1. Review Employee Salaries: Identify employees currently classified as exempt and compare their salaries to the new thresholds.  Employees earning less than $43,888 annually must be reclassified or given a raise to maintain their exempt status.
  2. Update Payroll Systems: Adjust payroll systems to accommodate the new salary thresholds and ensure accurate calculation of overtime pay.
  3. Communicate Changes: Inform affected employees about the changes and how they may impact their paychecks.  Clear communication helps manage expectations and maintains employee morale.
  4. Reevaluate Job Duties: Ensure job descriptions and duties align with exemption criteria.  Misclassification can lead to legal issues and back-pay liabilities.

How can we help?

Time Equipment Company offers FLSA-compliant time tracking systems with multiple pay classes, including salaried exempt, salaried non-exempt, hourly, and more.  In addition, the system provides leading indicators of overtime before it happens.  As a result, this report can save you time and money.

For more information about tracking salaried, non-exempt, and hourly employees, contact Time Equipment Company at 800-997-8463 or sales@timeequipment.com.

*This document simplifies complex information as Time Equipment Company understands it.  It is not to be taken as legal advice.  The guidelines are consistently changing.  For further information, please visit the U.S. Department of Labor or your local state department of labor.