More Salaried Employees Are Now Eligible for Overtime. Here’s What You Need to Know.

Moving from being paid hourly to being paid a salary is generally an achievement to be proud of, as it typically indicates a higher-level job with greater responsibilities. However, there are a few downsides to making a salary, with one notable downside being that most salaried employees usually are not entitled to be paid overtime. Earlier this year, the Department of Labor (DOL) published a final rule that would make more salaried workers eligible for overtime pay under the Fair Labor Standards Act (FLSA). A Richmond executive employment lawyer can counsel you on what the new rule means for your situation, whether you are an employer or an employee. 

A Refresher on the Fair Labor Standards Act 

The FLSA is one of the foundational employment laws of the United States. Enacted in 1938, it has four primary objectives: 

1. Establishes a federal minimum wage (while states are free to raise their minimum wages above the federal minimum, no state may set its minimum wage below it)
2. Establishes 40 hours as the standard workweek
3. Establishes overtime protocols through which employers are required to provide additional compensation for hours worked in excess of 40 per week
4. Establishes limitations on child labor and the employment of minors 

All employees in the U.S. can be classified into two categories: exempt and non-except. Exempt employees are those who are exempt from the FLSA’s requirements. This category encompasses most salaried workers. Non-exempt employees are employees who are covered by the FLSA’s requirements. This category encompasses most workers who are paid hourly. If you’re unsure of which category you fit into (or should fit into), please discuss your issue with a Richmond executive employment lawyer. 

There are several categories of workers who are exempt from the FLSA. For the purpose of this article, the two most relevant exemptions are the “white collar” exception and the highly compensated employee exemption. 

Exemption for White Collar Employees 

Most white collar employees are exempt from the FLSA. Known as the “EAP” exception (because it involves Executive, Administrative, and Professional employees), it applies to employees who meet the following criteria: 

For executive employees: 

• Compensated on a salary basis at a rate of at least $684 per week
• Duties are managing the enterprise or a department or subdivision of the enterprise
• Must customarily and regularly direct the work of at least two others
• Has hiring, firing, and advancement authority or influence 

For administrative employees: 

• Compensated on a salary basis at a rate of at least $684 per week
• Duties are the performance of office non-manual work directly related to the management or business operation of the employer
• Duties include exercise of discretion and independent judgment

For professional (i.e., “learned” professional) employees: 

• Compensated on a salary basis at a rate of at least $684 per week
• Duties are the performance of work requiring advanced knowledge that is predominantly intellectual in character
• Advanced knowledge must be in a field of science or learning
• Advanced knowledge must customarily be acquired by prolonged study 

Exemption for Highly Compensated Employees 

A “highly compensated employee” for FLSA purposes is one who performs office or non-manual work and is paid an annual compensation of at least $107,432, which must include at least $684 per week paid on a salary basis. Highly compensated employees must also perform at least one of the duties of an executive, administrative, or professional employee using the tests above. For questions about the highly compensated employees’ exemption to the FLSA, please contact a Richmond executive employment lawyer. 

What the Department of Labor’s New Rule Does 

The DOL’s new rule raises the salary thresholds for both the white collar exemption and the highlight compensated employee exemption, as well as provides a mechanism for those salary thresholds to be updated periodically. It does not change any of the duties-based tests for any of the exemptions. The increases will have the effect of making more salaried employees eligible for overtime pay. 

New Threshold for White Collar Employees 

The previous salary threshold to be considered to be considered a white collar employee under the FLSA was $684 per week/$35,568 per year. On July 1, 2024, the threshold increased to $844 per week/$43,888 per year. On January 1, 2025, it will increase to $1,128 per week/$58,656 per year. This threshold reflects the standard salary level at the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage census region. 

New Threshold for Highly Compensated Employees 

The previous compensation threshold to be considered a highly compensated employee was $107,432 per year, including at least $684 per week paid on a salary basis. On July 1, 2024, the threshold increased to $132,964 per year, including at least $844 per week paid on a salary basis. On January 1, 2025, it will increase to $151,164 per year, including at least $1,128 per week paid on a salary basis. This threshold reflects the annualized weekly earnings of the 85th percentile of full-time salaried workers nationwide. 

Periodic Updates to the Salary Thresholds 

The FLSA authorizes the DOL to delimit the salary thresholds for FLSA exemptions, including making updates to them as necessary. The new rule states that the minimum salary levels will be updated beginning on July 1, 2027, and every three years thereafter using the methodology in effect at the time of the update and current earnings data. These automatic updates will increase the thresholds without the DOL having to undergo the lengthy process of notice-and-comment rule making every time it wants to update them. 

Speak to a Richmond Executive Employment Lawyer About Salaries, Overtime, and FLSA Exemptions 

For more information about what the DOL’s new rule means for you or your business, you should consider speaking to an experienced attorney. To get started, please contact a Richmond executive employment lawyer at Pierce / Jewett by calling 804-502-2320 or using our online contact form.