May 20, 2024 • 12 mins
The U.S. Department of Labor has released a much-anticipated final rule on the most common exemptions from overtime that impacts employers and the classification of their employees. The rule will increase the minimum salary required to qualify for exemptions under federal law for executive, administrative, professional and highly compensated employees, first on July 1, 2024 and again on January 1, 2025. We’ll go over what employers need to know about these changes and more. Listen in as we cover:
- [1:03] Current federal rules on overtime exemption
- [2:25] July 1, 2024 minimum salary requirement change
- [3:39] January 1, 2025 minimum salary requirement change
- [4:47] Employer options for complying with the new salary requirement
- [5:14] Steps to consider taking now
- [6:12] Changes to the highly compensated employee exemption
- [9:04] Impact in states with their own exemption rules
This content is based on generally accepted HR practices, is advisory in nature, and does not constitute legal advice or other professional services. ADP does not warrant or guarantee the accuracy, reliability, and completeness of the content. Employers are encouraged to consult with legal counsel for advice regarding their organization's compliance with applicable laws. This content is current as of the published date.
Copyright © 2024 ADP, Inc. All Rights Reserved. The ADP logo, ADP, RUN Powered by ADP, and HR{preneur} are registered trademarks of ADP, Inc. and its affiliates. All other marks are the property of their respective owners.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
On April 23rd, 2024, the U .S.
Department of Labor, the DOL, released afinal rule that will increase the minimum
salary required to qualify for exemptionsfrom the federal overtime requirements for
executive, administrative, professional,and highly compensated employees.
The final rule increases the minimumsalary requirements for these exemptions
(00:20):
first on July 1st, 2024, and then again onJanuary 1st, 2025.
In this podcast, we'll cover key detailsabout the upcoming changes and discuss
what employers need to know.
Welcome to HRpreneur.
I'm Jim Duffy.
From Main Street to your street, theHRpreneur podcast is centered around
helping small businesses like yours gainthe knowledge you need from HR, payroll
(00:44):
and hiring to time, taxes, benefits andinsurance.
Today, we'll talk with our guest, MichaelGrosso, about what you need to know to
navigate the new overtime exemption rules.
Michael is senior counsel with ADP's HumanCapital Management Group.
Hello there, Michael.
It's great to have you on our podcast.
Welcome to the show.
Thanks, Jim.
It's good to be here with you.
All right.
Let's dig in here.
(01:04):
So before we dive into the changes, canyou please provide us some background on
what it takes to be exempt from overtimeunder current federal law?
Sure.
That's a great place to start.
To fall within the executive, administrative, professional employee
exemptions from overtime under federallaw,
An employee generally must one, be paid asalary, meaning that they are paid a
(01:28):
predetermined and fixed amount that is notsubject to reduction because of variations
in quality or quantity of work performed.
This is known as the salary basis test.
Two, they must be paid at least aspecified weekly salary level.
And finally, three, primarily performexecutive, administrative, or professional
duties as provided in the DOL'sregulations.
(01:50):
This is known as the duties test.
Highly compensated employees performingoffice or non -manual work and paid a
total annual compensation of a specifiedamount are exempt from overtime if they
customarily and regularly perform at leastone of the duties of an exempt executive,
administrative, or professional employeeidentified in the standard test for
(02:13):
exemption.
The duties test and salary basis testwon't change under the recent rule, which
is more centered around the minimum payrequirements for these exemptions.
Michael, thank you for that refresher.
Let's move on to the upcoming changes.
What's the first change you would like todiscuss today?
Well, effective July 1st, 2024, theminimum salary required for the executive,
(02:37):
administrative, and professional employeeexemptions from overtime will increase
from $684 per week to $844 per week.
This means that to qualify for exemptionfrom the overtime requirements under
federal law beginning July 1st, 2024,employees will be required to be paid a
(02:58):
minimum weekly salary of $844 and continueto perform the applicable job duties.
Under federal law, employers will continueto be permitted to use non -discretionary
bonuses, incentive payments, andcommissions to satisfy up to 10 % of the
minimum salary requirement,
for the administrative, professional, andexecutive exemptions, as long as these
(03:22):
forms of compensation are paid at leastannually.
By the way, I'd like to hold off ondiscussing changes to the pay requirements
to the exemption for highly compensatedemployees until later, because it works a
little bit differently.
Yeah, Michael, that sounds great.
We'll get to that in a few minutes.
For the executive, administrative, andprofessional employee exemptions,
(03:43):
Employers will see another increase to theminimum salary requirement relatively
soon, correct?
Yes.
Effective January 1st, 2025, the minimumsalary required for the executive,
administrative, and professionalexemptions from overtime under federal law
will increase from $844 per week to $1,128 per week.
(04:06):
Again, employers will continue to bepermitted to use non -discretionary
bonuses, incentive payments, andcommissions
to satisfy up to 10 % of the minimumsalary requirement as long as these forms
of compensation are paid at leastannually.
Michael, are there any scheduled increasesafter January 1, 2025?
(04:27):
The final rule includes a mechanism toautomatically update the minimum salary
requirements every three years to bedetermined by the DOL using earnings data
published by the US Bureau of LaborStatistics.
The next update...
will take place on July 1, 2027.
Thank you for clarifying that.
So what options do employers have if theycurrently have one or more employee who
(04:52):
earn a weekly salary of less than the newminimum requirement?
Well, if employers exempt employees fallbelow the new salary threshold, they will
generally have two options.
One, reclassify employees as non -exemptand pay them overtime whenever they work
more than 40 hours in a work week.
Or two,
they could raise their salary to meet thenew requirement.
(05:14):
So what are some steps impacted employersshould consider taking as soon as possible
if they haven't done so already?
Well, first, employers can review thefinal rule and guidance.
The DOL has published a copy of the finalrule and answers to frequently asked
questions.
Also, they can review their currentemployee classifications.
Take this opportunity to review all exemptclassifications,
(05:38):
to ensure that employees still qualifyunder the existing duties tests.
Then, an employer can evaluate the impacton their business.
This includes identifying those employeeswho currently earn less than $844 per week
and $1,128 per week and are classified asexempt from overtime.
(06:00):
Finally, they can watch for potentialupdates.
The final rule will likely face legalchallenges.
we will be monitoring the status of therule closely and updating our content as
any developments unfold.
Excellent.
So Michael, let's turn to the exemptionfrom overtime for highly compensated
employees.
I know that exemption is used less oftenthan the others we've discussed, but will
(06:22):
the pay requirements for that exemptionalso be changing?
Yes.
On July 1st, 2024, the minimum totalcompensation required for the highly
compensated employee exemption
will increase to $132,964 per year,including at least $844 per week that must
(06:43):
be paid on a salary basis.
And then on January 1, 2025, the minimumtotal compensation required for the highly
compensated employee exemption willincrease to $151,164 per year, including
at least $1,128 per week,
that must be paid on a salary or a feebasis.
(07:06):
These figures will also be updated everythree years.
So what are the options for complying withthe new pay requirements for the highly
compensated employee exemption?
If an exempt highly compensated employee'sweekly salary is less than $844 as of July
1st, 2024, the employer must either raisetheir salary to $844 per week or
(07:31):
reclassify them as non -exempt.
If an exempt, highly compensatedemployee's weekly salary is at least $844,
but their total annual compensation isless than $132 ,964 per year, the employer
generally has three options.
First, raise their total annualcompensation to $132,964 per year, but if
(07:58):
they elect this option,
they should review the employee's jobduties to ensure that they continue to
qualify for the highly compensatedemployee exemption.
Second, they could reclassify the affectedemployees as non -exempt and pay them
overtime whenever they work more than 40hours in a work week.
Or finally, apply the full duties test forthe administrative, professional, or
(08:21):
executive exemptions.
If the employee satisfies the full dutiestest of one of these exemptions, they can
classify them as exempt
under one of these exemptions and keep thecompensation costs the same by simply
meeting the new weekly salary requirementfor those exemptions rather than raising
their total annual compensation to $132,964 per year.
(08:45):
If the employee cannot fully satisfy oneof the duties tests, then select one of
the first two options.
Another decision will have to be madebefore January 1st, 2025.
based on the minimum total compensationrequirements that take effect on that
date.
Thank you for that.
Michael, how will the new federal ruleaffect employees in states that have their
(09:08):
own rules on exemption from overtime?
Generally, if a state law is moreprotective, in other words, requires a
higher salary amount or has duties teststhat are more difficult to satisfy, then
the state law must be followed.
Currently, only a few states such asAlaska, California,
Colorado, New York, and Washington haveminimum salary requirements for exemptions
(09:33):
that exceed $844 for one or more of theexemptions.
Therefore, employees in most states will beaffected by the federal changes.
Now keep in mind that state rules mayprohibit employers from using bonuses to
satisfy part of the salary requirement.
So to maintain the state exemption inthese locations, employers must satisfy
(09:56):
the state's requirement
with a salary alone.
Employers should be careful to check theirstate law to ensure compliance.
Michael, excellent.
This is tremendously helpful information.
This brings us to the end of our episode.
Again, I'd like to thank you for stoppingin.
We enjoyed having you here.
During your conversation, Michael, I tooka few notes.
(10:17):
And if you don't mind, I'll just kind ofgive a quick recap.
But keep me honest, all right?
First of all, the minimum salary requiredfor the executive, administrative, and
professional employee exemptions fromovertime under federal law will increase
from $684 per week to $844 per week as ofJuly 1, 2024.
The minimum salary required for theseexemptions will increase to $1,128 per
(10:43):
week effective January 1, 2025.
Next item here, the minimum totalcompensation requirement for the highly
compensated employee exemption will alsobe increasing on those dates.
The final rule includes a mechanism toautomatically update the minimum salary
and compensation requirements every threeyears.
The next update will take place on July 1,2027.
(11:07):
Another point here is if exempt employeesfall below the new salary threshold,
employers will generally have two options.
The first one being reclassify the employees as non-exempt and
pay them overtime whenever they work more than 40 hours in a work week
or two, to raise their salary to meet the new requirement.
Another point here, employers should beginevaluating the cost and impact of these
(11:31):
options as soon as possible.
And lastly, state laws should also beconsidered.
So I covered a lot there.
How did I do?
You nailed it, Jim.
Okay, perfect.
Thank you, Michael.
So presented by ADP.
HRpreneur focuses on the entrepreneurs andbusiness drivers who are shaping the
growth of their companies and positivelyimpacting the lives of their employees.
(11:52):
With each episode, we'll bring the expertsto you, answer your questions, and help
you think beyond today so you can discovermore success tomorrow.
Thanks also to our listeners for joiningus for today's episode.
Be well, and we hope you'll join us againsoon. This content is based on generally accepted HR practices, is advisory in nature, and does not constitute legal advice or other professional services. ADP does not warrant or guarantee the accuracy, reliability, and completeness of the content. Employers are encouraged to consult with legal counsel for advice regarding their organization's compliance with applicable laws. This content is current as of the published date. Copyright © 2024 ADP, Inc. All Rights Reserved. The ADP logo, ADP, RUN Powered by ADP, and HR{preneur} are registered trademarks of ADP, Inc. and its affiliates. All other marks are the property of their respective owners.
On April 23rd, 2024, the U .S.
Department of Labor, the DOL, released afinal rule that will increase the minimum
salary required to qualify for exemptionsfrom the federal overtime requirements for
executive, administrative, professional,and highly compensated employees.
The final rule increases the minimumsalary requirements for these exemptions
(00:20):
first on July 1st, 2024, and then again onJanuary 1st, 2025.
In this podcast, we'll cover key detailsabout the upcoming changes and discuss
what employers need to know.
Welcome to HRpreneur.
I'm Jim Duffy.
From Main Street to your street, theHRpreneur podcast is centered around
helping small businesses like yours gainthe knowledge you need from HR, payroll
(00:44):
and hiring to time, taxes, benefits andinsurance.
Today, we'll talk with our guest, MichaelGrosso, about what you need to know to
navigate the new overtime exemption rules.
Michael is senior counsel with ADP's HumanCapital Management Group.
Hello there, Michael.
It's great to have you on our podcast.
Welcome to the show.
Thanks, Jim.
It's good to be here with you.
All right.
Let's dig in here.
(01:04):
So before we dive into the changes, canyou please provide us some background on
what it takes to be exempt from overtimeunder current federal law?
Sure.
That's a great place to start.
To fall within the executive, administrative, professional employee
exemptions from overtime under federallaw,
An employee generally must one, be paid asalary, meaning that they are paid a
(01:28):
predetermined and fixed amount that is notsubject to reduction because of variations
in quality or quantity of work performed.
This is known as the salary basis test.
Two, they must be paid at least aspecified weekly salary level.
And finally, three, primarily performexecutive, administrative, or professional
duties as provided in the DOL'sregulations.
(01:50):
This is known as the duties test.
Highly compensated employees performingoffice or non -manual work and paid a
total annual compensation of a specifiedamount are exempt from overtime if they
customarily and regularly perform at leastone of the duties of an exempt executive,
administrative, or professional employeeidentified in the standard test for
(02:13):
exemption.
The duties test and salary basis testwon't change under the recent rule, which
is more centered around the minimum payrequirements for these exemptions.
Michael, thank you for that refresher.
Let's move on to the upcoming changes.
What's the first change you would like todiscuss today?
Well, effective July 1st, 2024, theminimum salary required for the executive,
(02:37):
administrative, and professional employeeexemptions from overtime will increase
from $684 per week to $844 per week.
This means that to qualify for exemptionfrom the overtime requirements under
federal law beginning July 1st, 2024,employees will be required to be paid a
(02:58):
minimum weekly salary of $844 and continueto perform the applicable job duties.
Under federal law, employers will continueto be permitted to use non -discretionary
bonuses, incentive payments, andcommissions to satisfy up to 10 % of the
minimum salary requirement,
for the administrative, professional, andexecutive exemptions, as long as these
(03:22):
forms of compensation are paid at leastannually.
By the way, I'd like to hold off ondiscussing changes to the pay requirements
to the exemption for highly compensatedemployees until later, because it works a
little bit differently.
Yeah, Michael, that sounds great.
We'll get to that in a few minutes.
For the executive, administrative, andprofessional employee exemptions,
(03:43):
Employers will see another increase to theminimum salary requirement relatively
soon, correct?
Yes.
Effective January 1st, 2025, the minimumsalary required for the executive,
administrative, and professionalexemptions from overtime under federal law
will increase from $844 per week to $1,128 per week.
(04:06):
Again, employers will continue to bepermitted to use non -discretionary
bonuses, incentive payments, andcommissions
to satisfy up to 10 % of the minimumsalary requirement as long as these forms
of compensation are paid at leastannually.
Michael, are there any scheduled increasesafter January 1, 2025?
(04:27):
The final rule includes a mechanism toautomatically update the minimum salary
requirements every three years to bedetermined by the DOL using earnings data
published by the US Bureau of LaborStatistics.
The next update...
will take place on July 1, 2027.
Thank you for clarifying that.
So what options do employers have if theycurrently have one or more employee who
(04:52):
earn a weekly salary of less than the newminimum requirement?
Well, if employers exempt employees fallbelow the new salary threshold, they will
generally have two options.
One, reclassify employees as non -exemptand pay them overtime whenever they work
more than 40 hours in a work week.
Or two,
they could raise their salary to meet thenew requirement.
(05:14):
So what are some steps impacted employersshould consider taking as soon as possible
if they haven't done so already?
Well, first, employers can review thefinal rule and guidance.
The DOL has published a copy of the finalrule and answers to frequently asked
questions.
Also, they can review their currentemployee classifications.
Take this opportunity to review all exemptclassifications,
(05:38):
to ensure that employees still qualifyunder the existing duties tests.
Then, an employer can evaluate the impacton their business.
This includes identifying those employeeswho currently earn less than $844 per week
and $1,128 per week and are classified asexempt from overtime.
(06:00):
Finally, they can watch for potentialupdates.
The final rule will likely face legalchallenges.
we will be monitoring the status of therule closely and updating our content as
any developments unfold.
Excellent.
So Michael, let's turn to the exemptionfrom overtime for highly compensated
employees.
I know that exemption is used less oftenthan the others we've discussed, but will
(06:22):
the pay requirements for that exemptionalso be changing?
Yes.
On July 1st, 2024, the minimum totalcompensation required for the highly
compensated employee exemption
will increase to $132,964 per year,including at least $844 per week that must
(06:43):
be paid on a salary basis.
And then on January 1, 2025, the minimumtotal compensation required for the highly
compensated employee exemption willincrease to $151,164 per year, including
at least $1,128 per week,
that must be paid on a salary or a feebasis.
(07:06):
These figures will also be updated everythree years.
So what are the options for complying withthe new pay requirements for the highly
compensated employee exemption?
If an exempt highly compensated employee'sweekly salary is less than $844 as of July
1st, 2024, the employer must either raisetheir salary to $844 per week or
(07:31):
reclassify them as non -exempt.
If an exempt, highly compensatedemployee's weekly salary is at least $844,
but their total annual compensation isless than $132 ,964 per year, the employer
generally has three options.
First, raise their total annualcompensation to $132,964 per year, but if
(07:58):
they elect this option,
they should review the employee's jobduties to ensure that they continue to
qualify for the highly compensatedemployee exemption.
Second, they could reclassify the affectedemployees as non -exempt and pay them
overtime whenever they work more than 40hours in a work week.
Or finally, apply the full duties test forthe administrative, professional, or
(08:21):
executive exemptions.
If the employee satisfies the full dutiestest of one of these exemptions, they can
classify them as exempt
under one of these exemptions and keep thecompensation costs the same by simply
meeting the new weekly salary requirementfor those exemptions rather than raising
their total annual compensation to $132,964 per year.
(08:45):
If the employee cannot fully satisfy oneof the duties tests, then select one of
the first two options.
Another decision will have to be madebefore January 1st, 2025.
based on the minimum total compensationrequirements that take effect on that
date.
Thank you for that.
Michael, how will the new federal ruleaffect employees in states that have their
(09:08):
own rules on exemption from overtime?
Generally, if a state law is moreprotective, in other words, requires a
higher salary amount or has duties teststhat are more difficult to satisfy, then
the state law must be followed.
Currently, only a few states such asAlaska, California,
Colorado, New York, and Washington haveminimum salary requirements for exemptions
(09:33):
that exceed $844 for one or more of theexemptions.
Therefore, employees in most states will beaffected by the federal changes.
Now keep in mind that state rules mayprohibit employers from using bonuses to
satisfy part of the salary requirement.
So to maintain the state exemption inthese locations, employers must satisfy
(09:56):
the state's requirement
with a salary alone.
Employers should be careful to check theirstate law to ensure compliance.
Michael, excellent.
This is tremendously helpful information.
This brings us to the end of our episode.
Again, I'd like to thank you for stoppingin.
We enjoyed having you here.
During your conversation, Michael, I tooka few notes.
(10:17):
And if you don't mind, I'll just kind ofgive a quick recap.
But keep me honest, all right?
First of all, the minimum salary requiredfor the executive, administrative, and
professional employee exemptions fromovertime under federal law will increase
from $684 per week to $844 per week as ofJuly 1, 2024.
The minimum salary required for theseexemptions will increase to $1,128 per
(10:43):
week effective January 1, 2025.
Next item here, the minimum totalcompensation requirement for the highly
compensated employee exemption will alsobe increasing on those dates.
The final rule includes a mechanism toautomatically update the minimum salary
and compensation requirements every threeyears.
The next update will take place on July 1,2027.
(11:07):
Another point here is if exempt employeesfall below the new salary threshold,
employers will generally have two options.
The first one being reclassify the employees as non-exempt and
pay them overtime whenever they work more than 40 hours in a work week
or two, to raise their salary to meet the new requirement.
Another point here, employers should beginevaluating the cost and impact of these
(11:31):
options as soon as possible.
And lastly, state laws should also beconsidered.
So I covered a lot there.
How did I do?
You nailed it, Jim.
Okay, perfect.
Thank you, Michael.
So presented by ADP.
HRpreneur focuses on the entrepreneurs andbusiness drivers who are shaping the
growth of their companies and positivelyimpacting the lives of their employees.
(11:52):
With each episode, we'll bring the expertsto you, answer your questions, and help
you think beyond today so you can discovermore success tomorrow.
Thanks also to our listeners for joiningus for today's episode.
Be well, and we hope you'll join us againsoon. This content is based on generally accepted HR practices, is advisory in nature, and does not constitute legal advice or other professional services. ADP does not warrant or guarantee the accuracy, reliability, and completeness of the content. Employers are encouraged to consult with legal counsel for advice regarding their organization's compliance with applicable laws. This content is current as of the published date. Copyright © 2024 ADP, Inc. All Rights Reserved. The ADP logo, ADP, RUN Powered by ADP, and HR{preneur} are registered trademarks of ADP, Inc. and its affiliates. All other marks are the property of their respective owners.
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