The first phase of the U.S. Department of Labor’s (DOL) final rule on overtime will be effective July 1, with the second phase beginning Jan. 1. 

Under the new rule, the salary threshold to exempt salaried workers from being paid overtime will be increased. Above the new pay threshold, exemptions will remain for executive, administrative and professional (EAP) employees. 

“As you all know one of the basic principles of the American workplace is that a hard day’s work deserves a hard day’s pay and a cornerstone of that promise is the Fair Labor Standards Act (FLSA) requirement that when most workers work more than 40 hours in a week they get paid more for their time,” said Jessica Looman, DOL Wage and Hour Division administrator, during a recent webinar on the final rule. “The department’s new overtime regulations restore and extend this promise for millions more lower-paid salary workers in the United States.” 

Effective July 1, the salary threshold will be raised from $684 or $35,568 to $844 per week or about $43,888 per year for full-time workers. 

Bridget Dutton, Wage and Hours Division program specialist, said in the webinar that the increase is based on the 20th percentile of full-time salaried workers’ earnings in the lowest wage census region, in this case, the South. 

Effective Jan. 1, the salary threshold will be increased to $1,128 per week or $58,656 per year. 

This was set based on the 35th percentile of full-time salaried workers in the South, Dutton said. 

Additionally, the final rule requires the DOL to review salary thresholds every three years starting on July 1, 2027. The review should use the methodology in effect at the time of the update and use current earnings data, Dutton said. 

If no updates are made to the current methodology, the salary should reflect the 35th percentile of full-time salaried workers in the lowest-income census region. 

Salary thresholds also will be applied to pay for employees identified as Highly Compensated Employees (HCEs). These employees only have to meet one or more of the requirements needed to be an EAP employee. 

Currently, these employees must also make a salary of $684 per week or $107,432 annually. The new rule increases the salary requirement of $132,964 annually including at least $844 per week paid on a salary or fee basis beginning July 1. On Jan. 1, the threshold will increase to $151,164 per year, including at least $1,128 per week paid on a salary or fee basis. 

Dutton said the salary increases for HCE employees are based on the 80th and 85th percentile of full-time salaried workers nationwide. 

The HCE salary threshold also will be updated every three years and based on the 85th percentile of full-time salaried workers nationwide. 

Dutton said the final rule does not change the requirements needed to determine whether an employee is an EAP employee. 

Executive exemptions include: 

• • The employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than salary threshold;
  • The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;
  • The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and
  • The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees must be given particular weight.

Administrative exemptions include: 

• • The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than the salary threshold;
  • The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
  • The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

Learned professional exemptions include: 

• • The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than salary threshold;
  • The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment;
  • The advanced knowledge must be in a field of science or learning; and
  • The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

Creative professional exemptions include: 

• • The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less salary threshold per week; and
  • The employee’s primary duty must be the performance of work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.

Other exemptions include computer employees, such as computer programmers and software engineers, along with outside sales. For more information on the rules, click here. 

Blue-collar workers are not exempt. This include anyone whose work involves repetitive operations with their hands, physical skill, and energy, the DOL website says. This includes employees in production, maintenance, construction, and similar occupations such as carpenters, electricians, mechanics, plumbers, ironworkers, craftsmen, operating engineers, longshoremen, construction workers, and laborers. 

Dutton said that employers can comply with the new rule in a number of ways. This includes increasing the salary of employees to at least the new salary level to retain their exempt status. An employer could also pay an overtime premium of one-and-a-half times regular pay for any overtime hours, she said. 

Work could also be reduced to eliminate overtime work, Dutton said. Another option would be reducing the amount of pay allocated to employees’ base salaries to offset the new overtime pay or using some combination of the options. 

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