New Overtime Rule to Boost Pay for Millions of Workers

The U.S. Department of Labor has unveiled a new overtime rule that will raise the salary threshold for overtime exemption in two phases. Effective July 1, 2024, the threshold will increase to $43,888 annually, and then further rise to $58,656 annually on January 1, 2025. This change is expected to extend overtime pay protections to an estimated 4 million additional workers.

The rule also increases the total annual compensation requirement for highly compensated employees (HCEs) exempt from overtime to $132,964 on July 1, 2024, and $151,164 on January 1, 2025. Starting July 1, 2027, these thresholds will be automatically updated every three years based on earnings data to keep pace with wage growth.

Key Highlights

• The new salary levels are set at the 20th percentile of full-time salaried workers in the lowest-wage region (currently the South) for the initial threshold, and the 35th percentile for the final level.
• The HCE thresholds are set at the 80th and 85th percentiles of full-time salaried workers nationally for the two phases.
• Employers have options to raise salaries above the new thresholds to maintain exemptions or reclassify affected workers as non-exempt and pay overtime.
• The rule aims to restore overtime protections eroded by inflation and infrequent updates, benefiting lower-paid salaried workers and the middle class.
• Legal challenges are expected, similar to those faced by previous overtime rule changes.

The new overtime rule represents a significant update to federal wage regulations, aiming to extend overtime pay to millions of additional salaried workers while providing employers time to adjust compensation structures.