Client Alert: Increased Federal Overtime Eligibility Effective July 1, 2024 – Part Two

The U.S. Department of Labor Final Rule (“Rule”) expanding overtime eligibility for certain employees took effect on July 1, 2024.  The Rule raises the minimum salary threshold required for an employee to be exempt from overtime pay requirements under the federal Fair Labor Standards Act (“FLSA”).

As previously reported in Part One, the Rule faces several (and still pending) legal challenges.  On June 28, 2024, the U.S. District Court for the Eastern District of Texas issued an order blocking the Rule’s implementation temporarily, but only for government employees of the State of Texas.  The court did not grant the requested nationwide injunctive relief, which means the Rule remains unblocked and is now in effect for all other public and private sector employees.

Despite ongoing legal challenges, employers (except for the State of Texas) must comply with the new salary requirements to treat their employees as exempt from overtime pay under federal law.  Previously, the minimum annual salary required for exempt status was $35,568 ($684 per week).  The Rule raises this threshold to $43,888 ($844 per week) as of July 1, 2024.  On January 1, 2025, the threshold will increase again to $58,656 per year ($1,128 per week).

For overtime-exempt employees earning less than the new salary level, employers must either reclassify those employees as “non-exempt” and overtime eligible or increase employee compensation to meet the new minimum salary threshold.  Keep in mind that up to 10 percent of the minimum salary levels can be met by payment of non-discretionary bonuses and other incentive compensation, which provides some flexibility for how the new salary requirement can be met.

How Employers Can Comply:

  • One-Time Adjustment to January 2025 Level. Some employers may prefer to increase employee salaries to the January 2025 level right away for administrative convenience instead of adding two separate increases now and again on January 1, 2025.
  • Non-Discretionary Bonuses or Incentive Compensation. Employers may want to meet the new salary threshold by increasing non-discretionary bonuses or other incentive compensation opportunities and consider how required adjustments may impact annual raises going forward.
  • Reclassification of employees to “non-exempt” status. Rather than raise annual salaries to the new thresholds, some employers may choose to reclassify previously exempt employees and pay those employees overtime pay as required. If reclassifying employees to “non-exempt” status, employers should be aware that these employees will need to keep accurate records of time worked each day, including starting and ending times at the beginning and end of the workday, and for unpaid meal periods.  Employers should review their timekeeping policies and procedures and provide necessary training to newly reclassified employees in these areas.

What Employers Should Do Now:
While the Rule does not modify the duties tests for the white-collar exemptions, now is a good time for all employers to review whether employees currently classified as exempt have the duties necessary to classify them as exempt.  Employers are required to comply with both federal and Wisconsin wage and hour law.  Therefore, employers must consider the salary and duties requirements of both state and federal law in determining whether their employees qualify for exempt status.

Now is the time for employers to review employee classification, pay, and policies and make necessary adjustments to comply with the new Rule.  If you have questions about the Rule and/or need assistance with compliance in this area, please contact Attorney Rebecca Kent or Attorney Jacquelyn Adamicki.

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Jacquelyn joined McCarty Law in June 2024 after graduating from the University of Wisconsin Law School. She focuses her practice on employment & labor law, construction law, and litigation matters.