New overtime rule 2024: Minimum overtime-exemption increases

The minimum annual salary for most overtime-exempt employees will increase to $43,888 on July 1, 2024, and then increase again to $58,656 on January 1, 2025, under a new overtime rule coming soon from the US Department of Labor (DOL).

That represents a cumulative jump of 65% over the current salary threshold of $35,568 per year, which took effect in 2020.

Starting July 1, 2027, and every three years thereafter, the salary threshold will be adjusted for inflation.

The DOL announced the changes today in a conference call with reporters. An official rule will be published soon in the Federal Register.

“The final rule announced today restores and extends overtime protections to lower-paid salary workers and prevents a future erosion of overtime protections while ensuring greater predictability,” said Jessica Looman, administrator of the DOL’s Wage and Hour Division.

The unexpected two-phase approach is the result of the DOL’s efforts to balance employers‘ requests for a longer implementation period against the “significant earnings growth” seen in recent years, according to Solicitor of Labor Seema Nanda.

The first increase to $43,888 per year (or $844 per week) represents an update of the salary threshold using the same methodology the Trump administration employed in 2020 — i.e., setting it at the 20th percentile of earnings of full-time salaried workers in the lowest-wage Census Region (currently the South) in 2024.

The second increase to $58,656 per year (or $1,128 per week) is based on the new methodology the DOL will use for tri-annual inflation adjustments going forward — i.e., setting it at the 35th percentile of earnings of full-time salaried workers in the lowest-wage Census Region (currently the South).

The minimum salary threshold for highly compensated employees (who face a more relaxed test for job duties) will be adjusted with a similar approach — increasing from its current level of $107,432 to $132,964 on July 1 and then again to $151,164 on January 1.

Nearly 144 million workers are covered by the Fair Labor Standards Act (FLSA). The DOL estimates that about 1 million of those workers will be affected by the July 1 update and then another 3 million will be affected by the January 1 update. In total, about 4 million workers will be affected. Employers of overtime-exempt employees who make less than the new minimum salary will need to either raise those employees’ salaries or reclassify them as nonexempt.

With the final rule, the DOL decided to abandon its plans to bring the salary thresholds for workers in four US territories (Puerto Rico, Guam, the US Virgin Islands and the Commonwealth of the Northern Mariana Islands) in line with the rest of the US and to increase the salary thresholds for workers in American Samoa and in the motion picture industry. The DOL said it plans to address those proposals at a later date.

The DOL said it will be providing outreach and education to support its new rule. FAQs, charts, and other guidance will be available this week. The agency also plans to offer webinars and other outreach events in the coming weeks prior to the July 1, 2024, deadline.