The new overtime rule under the Fair Labor Standards Act (FLSA) is going into effect, and employers must ensure that their workplaces follow it. Although ongoing litigation concerning the rule is likely, employers cannot rely on potential outcomes in court cases to delay implementing the rule.
The increased salary thresholds for overtime exemptions occur in two phases. The first phase occurred when the threshold increased to $844 per week ($43,888 per year) on July 1, 2024. The second phase will occur when the threshold increases to $1,128 weekly (58,656 per year) on January 1, 2025. After that, beginning in 2027, automatic increases to the threshold will occur.
Qualifying for the exemption requires employees to not only meet the income threshold, which can still consist of up to 10% nondiscretionary bonuses and commissions but also pass a duties test and be paid on salary rather than hourly. However, the new overtime rule did not impact either the FLSA's outside sales employee exemption or the computer employee exemption.
For example, implementing the overtime rule is a good opportunity for employers to review their job classifications, especially if it has been some time since anyone has reviewed them. As part of that review, employers should ensure that exempt positions meet the duties test because they are bona fide executive, administrative, or professional employees. Employers should never rely on job titles or assume that all salaried workers are exempt from the new overtime rule.
The FLSA also applies equally to full-time and part-time workers. If either type of employee works more than 40 hours in a workweek, they could be entitled to overtime pay under the FLSA. However, if an employee does not work overtime, the FLSA is inapplicable.
Further complicating matters is the fact that some states, such as California and New York, have salary thresholds under their state labor laws that are higher than the July 1st federal salary threshold. Some states also have different versions of the duties test to determine whether employees are exempt, such as Colorado. Still, other states do not recognize all FLSA exemptions, such as the highly compensated employee exemption.
The biggest takeaway for employers is that FLSA litigation continues to rise, and the changes have made it more difficult to classify workers as exempt. Position classifications and salary decisions are increasingly scrutinized for transparency and equity, and using artificial intelligence tools in human resources can narrow judgment in making these decisions.
As a result, employers need to ensure that they are familiar with the bounds of the new rule, understand how it applies to their existing workforce and job classification system, and determine whether the change in the law warrants reclassifications of existing jobs.
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