Understanding the New DOL Overtime Rule and Its Impact on Your Organization

Understanding the New DOL Overtime Rule and Its Impact on Your Organization

To ensure workers are paid a living wage for all their work, the Department of Labor (DOL) recently released a rule increasing the salary threshold that determines which salaried workers are entitled to overtime pay under the Fair Labor Standards Act (FLSA).

New Overtime Rule Will Impact 4.3 Million Workers

The FLSA protects most workers from working long hours for little pay. Hourly workers typically get overtime pay (time and a half) for any hours over 40 in a workweek.

However, salaried workers may be exempt from overtime pay if they earn above a certain salary threshold set by the DOL and their job duties fall into specific exempt categories.

The Three-Part Test for Overtime Exemption

The DOL uses a three-part test to determine whether an employee is exempt from overtime rules:

  • The employee must receive a salary that does not vary based on the quantity or quality of their work.
  • The employee must receive a salary above an established minimum amount.
  • The employee must perform primarily executive, administrative or professional (EAP) duties—essentially managers or highly credentialed professionals.

Current and New Salary Thresholds

Currently, the salary threshold is $684 per week or $35,568 per year. The new rule will phase in an updated salary threshold in two steps over the next eight months and will automatically update it every three years thereafter.

  • Effective July 1, 2024: The salary threshold will be raised to $844 per week, equivalent to $43,888 per year for a full-time, full-year worker.
  • Effective Jan. 1, 2025: The salary threshold will increase to $1,128 per week, equivalent to $58,656 per year for a full-time, full-year worker.

Future updates will be based on the methodology outlined in the rule to prevent erosion due to rising prices and wages.

Impact on Your Organization

Non-compliance with the new rule could subject your organization to litigation from employees and penalties from federal and state agencies. It’s important to review your payroll records and identify any salaried exempt employees with wages below the new threshold. For these employees, you should consider either raising their salary above the limit or changing their status to non-exempt and properly track hours and pay overtime when appropriate.

In addition, note that these limits will continue to increase, so ongoing monitoring is essential. Be aware that these are federal limits, and states where you have employees may have higher limits that you must comply with. By staying informed and proactive, your organization can ensure compliance and avoid potential legal and financial repercussions.

For More Information

CBIZ offers a wide range of outsourced accounting solutions, allowing business leaders to focus on their core operations. Our payroll specialists can help your organization stay compliant with the new DOL rule and ensure a smooth transition to the new overtime requirements. Connect with us today.


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