HR Alert: Federal Overtime Exemption Final Rule

Today is July 1, 2024, and the new federal overtime rules take effect. Here’s what you need to know.

On April 23, 2024, the U.S. Department of Labor issued a final rule increasing the salary thresholds of employees exempted from the Fair Labor Standards Act’s overtime requirement. Under the FLSA, this includes executive, administrative, and professional employees, as well as those considered to be a highly compensated employee.

Who’s an Executive, Administrative, or Professional Employee?

To qualify for these exemptions, each employee must meet certain requirements.

Executive Employee

To qualify for the executive employee exemption:

• The employee must be compensated on a salary basis of at least $684 per week;
• The employee’s primary duty must be managing the business or managing a customarily-recognized department of the business;
• The employee must regularly direct the work of at least two other full-time employees; and
• The employee must have the authority to hire or fire other employees or their suggestions and recommendations about hiring and firing must be given particular weight.

Administrative Employee

To qualify for the administrative employee exemption:

• The employee must be compensated on a salary or fee basis at a rate of no less than $684 per week;
• The employee’s primary duty must be the performance of office work or non-manual work directly related to the management or business operations of the employer or the employer’s customers; and
• The employee’s primary duty includes the exercise of discretion and independent judgement regarding significant matters.

Professional Employee

Unlike the other employee exemptions, the professional employee exemption is split into two types of professionals:  learned professionals and creative professionals.

To qualify for the learned professional employee exemption:

• The employee must be compensated on a salary or fee basis of no less than $684 per week;
• The employee’s primary duty must be the performance of work requiring advanced knowledge, which is defined as work which is predominantly intellectual and requires the consistent exercise of discretion and judgement; and
• The advanced knowledge must be in a field of science or learning and customarily acquired by a prolonged course of specialized intellectual instruction (like a graduate degree, for example).

A creative professional must:

• Be compensated on a salary or fee basis of at least $684 per week;
• Have work requiring invention, imagination, originality, or talent as her primary duty;
• Work in a recognized field of artistic or creative endeavor and not perform routine mental, manual, or physical work.

A few quick notes on these exemptions:

• A “primary duty” means the principal or most important duty the employee performs.
• “Directly related to management or general business operations” requires that the employee work in functional areas such as tax, finance, advertising and marketing, human resources, public relations, or similar activities.
• “Management” includes but isn’t limited to directing employees, interviewing, setting and adjusting the pay rates and work hours, and employee discipline.
• The field of science or learning requirement for professional employees includes law, medicine, accounting, engineering, architecture, teaching, and most types of physical, biological, and chemical sciences.

Who’s a Highly Compensated Employee?

A highly compensated individual is an employee who’s paid a total annual compensation of at least $107,432. This employee’s primary duties must include performing office or non-manual work, and she must regularly perform at least one of the exempt duties of an Executive, Administrative or Professional employee.

Timing of the Final Rule.

The DOL split the final rule into two phases, with the first phase going into effect on July 1, 2024, and the second phase going into effect on January 1, 2025.

Phase 1

On July 1, 2024, the minimum salary for Executive, Administrative, and Professional employees increases to $844 per week, totaling $43,888 annually.

The minimum salary to qualify for the highly compensated employee increases to $132,964 annually.

Phase 2

This second phase will take effect on January 1, 2025, when the minimum salary for Executive, Administrative, and Professional employees will increase again, this time to $1,128 per week, totaling $58,656 annually.

The minimum salary threshold for highly compensated employees will increase to $151,164 annually.

Are these Thresholds Different from New York’s Salary Thresholds?

Yes, they are!

As you probably know, at the beginning of this year, the New York State Department of Labor issued final regulations that increased the salary thresholds for overtime exempt workers in New York. These State regulations are different from the federal FLSA exemptions not only in dollar amount, but the salary increase timelines are different, too. The timeline for exempt employee salary thresholds under New York law is:

It’s important to note that unlike the federal salary thresholds, the New York salary thresholds apply only to Executive and Administrative employees. The Professional employee exemption remains the same as the federal Professional exempt threshold.

As you can see, New York’s salary thresholds are slightly higher than the federal government’s regulations. Obviously, you’ll want to ensure compliance with both sets of regs. Remember that employment law is one of the few areas where both New York State and the federal government govern your compliance. Sometimes their rules are consistent; other times they may vary – and employers need to be aware of it all.

If during the course of the year your employees no longer meet the salary threshold, you have two options to maintain compliance with the law:

1. Increase the salaries of your employees to keep them at or above the new salary threshold or
2. Begin paying them for any overtime work.

How Do I Keep It All Straight?

Call us. We can help ensure compliance with New York and federal labor and employment laws and regulations. It’s a lot to digest and implement.

We’re your trusted partners – just like you, except with a law degree.

Contact us anytime, at either info@coppolalegal.com or 716.839.9700.