DOL Finalizes Rule To Increase Compensation Thresholds for Overtime Eligibility

May 1, 2024 | by Joseph A. Capalbo

The Department of Labor (“DOL”) has issued a ruling with potential for a significant impact on both employers and employees in the U.S. The new rule passed this week from the Biden-Harris Administration expands the scenarios in which employees are owed overtime pay and could extend new overtime protections for upwards of 4 million salaried workers in the United States, marking a nearly 65% increase in the annual salary threshold for overtime pay. This ruling, along with the recent surge in union activity in a job market that is still tight, has the potential to tip the scales between capital and labor in the U.S.

On April 23, 2024, the DOL along with the Biden-Harris administration issued a final rule that raises the salary thresholds necessary to exempt a salaried bona fide executive, administrative, or professional employee from federal overtime pay requirements, thereby expanding overtime protections for many of the country’s lower-paid salaried workers. The rule has the potential to extend protections for almost four million paid workers in the United States and raises the annual wage threshold for overtime compensation by approximately 65% from 2019 to 2025. Key provisions of the final rule include expanding overtime protections to lower-paid salaried workers, giving workers more time off, and a provision for regular updates to the salary thresholds every three years to reflect changes in earnings. The rule is set to go into effect on July 1, 2024.

In 2019, $35,568 was established as the income level below which salaried workers are eligible for overtime. It will rise to $43,888 on July 1st, the equivalent of an annual salary, and then again to $58,656 on January 1, 2025. The new rule also updates the current yearly income threshold of $35,568 as of July 1st, 2019, using the same technique as the previous administration’s 2019 overtime regulation modification. The additional increase is the result of the rule’s revised approach going into effect on January 1, 2025. Furthermore, the regulation will modify the cutoff point for highly compensated workers. Compensation criteria will be updated every three years starting on July 1, 2027, with the most recent wage statistics being used to establish new compensation limits.

Before releasing its proposed rule in September 2023, the DOL engaged in a broad consultation with companies, employees, unions, and other relevant parties, taking into account over 33,000 comments while creating its final rule. The new rule seeks to clarify and limit the categories of legitimate executive, administrative, and professional workers who are not entitled to overtime benefits under the Fair Labor Standards Act. However, legal challenges to the new rule are anticipated. For example, it is possible that a judge will issue a nationwide injunction to halt the new rule’s adoption. When the Obama-era DOL attempted to raise the wage level from $455 to $973 in 2016, a federal court in Texas prevented the rule from being enforced. The Trump administration then attempted to amend the rule on its own, but this was once more rejected and is presently being appealed. Nevertheless, this new rule will almost certainly have a substantial impact on both employers and employees alike.