New Overtime Pay Rule
BY: lisa m. wood, cpa, mt - Director of tax
The U.S. Department of Labor’s Wage and Hour Division adopted a rule that significantly increases the level of income below which employers are required to pay overtime for executive, administrative and professional employees. The new pay rule takes effect July 1, 2024, and it is projected that approximately 4 million employees will lose their exempt status as a result.
The Fair Labor Standards Act (“FLSA”) requires employers to pay most employees at a rate equal to at least the federal minimum wage. Time an employee works over 40 hours in a workweek must be paid at a rate that is at least time and one-half the regular wage.
Some workers are exempt from the FLSA minimum wage and overtime including executive, administrative or professional employees. This “EAP” exemption applies when:
• The employee is paid a salary.
• The salary is not less than a minimum salary threshold, and
• The employee performs executive, administrative or professional duties.
Currently, most salaried workers are eligible for overtime pay if they earn less than $684 per week (annualized to $35,568 per year). On July 1, the threshold increases to $844 per week (annualized to $43,888 per year). On January 1, 2025, there will be an additional increase to $1,128 per week (annualized to $58,656 per year). There is a separate threshold for highly compensated employees. The current threshold is $107,432 per year, which increases on July 1 to $132,964 per year, and increases again on January 1, 2025, to $151,164 per year. The earnings thresholds will be updated every three years, beginning July 1, 2027.
Employers will be required to either raise salaries paid to employees or reclassify their employees as non-exempt. Non-exempt employees receive an hourly wage and overtime at the rate of 1½ times their hourly rate.
Our experienced team at Buckingham Advisors is here to help you! If you have questions regarding the new salary requirements, please contact your Buckingham Advisors representative.