DOL Overtime Rule Changes for 2024
Understanding the DOL Overtime Rule Changes for 2024
On April 23, 2024, the U.S. Department of Labor (DOL) introduced significant updates to the overtime regulations, impacting the salary threshold for overtime exemptions under the Fair Labor Standards Act (FLSA). These DOL overtime rule changes aim to redefine who qualifies as a “white-collar” or “highly compensated employee” (HCE), affecting many businesses and employees across various sectors, including insurance.
What’s New in the DOL Overtime Rule?
The new rule raises the salary threshold for exemption from overtime pay for executive, administrative, and professional workers. As of July 1, 2024, the salary threshold will increase from $684 per week ($35,568 annually) to $844 per week ($43,888 annually). Furthermore, by January 1, 2025, this threshold will rise again to $1,128 per week ($58,656 annually).
For highly compensated employees, the annual compensation threshold will also see adjustments. Starting July 1, 2024, it will increase from $107,432 to $132,964, and by January 1, 2025, it will reach $151,164.
These changes require all employers, including those in the insurance sector, to review and adjust their payrolls to comply with the new standards by the specified dates.
Breaking Down the Fair Labor Standards Act (FLSA)
The FLSA regulates several key employment aspects, including:
- Minimum wage: Currently set at $7.25 per hour at the federal level. (Currently $15 in Maryland and higher for some local jurisdictions.)
- Overtime pay: One and one-half times the regular rate of pay is required for hours worked over 40 in a workweek.
- Record-keeping and youth employment standards: Applicable to employees in the private sector and federal, state, and local governments.
Under the new DOL rule, to qualify for an exemption from overtime, employees must meet specific salary and duties tests. These exemptions typically apply to executive, administrative, and professional roles, as well as outside sales employees.
Understanding the Duties Tests
- Executive Employees:
- Must be compensated on a salary basis at a rate not less than the weekly standard level.
- Primary duty must be managing the enterprise or a recognized department or subdivision.
- Must customarily direct the work of at least two or more other full-time employees.
- Must have the authority to hire or fire other employees or influence such decisions.
- Administrative Employees:
- Must be compensated on a salary or fee basis at a rate not less than the weekly standard level.
- Primary duty must be office or non-manual work directly related to the management or general business operations.
- Must exercise discretion and independent judgment on significant matters.
- Outside Sales Employees:
- Primary duty must be making sales or obtaining orders/contracts for services.
- Must regularly engage in activities away from the employer’s place of business.
The Highly Compensated Employee (HCE) Test
For the DOL overtime rules changes, the HCE test combines a high compensation requirement with a less stringent duties test. Employees must:
- Perform office or non-manual work.
- Earn at least the annual compensation threshold, which includes a specified weekly salary amount.
- Regularly perform one of the duties of an exempt executive, administrative, or professional employee.
Impact on Employers and Employees
Employers can use nondiscretionary bonuses and incentive payments to meet up to 10% of the standard salary levels. For instance:
- Beginning July 1, 2024, up to $84.40 per week of the $844 threshold can be met through these payments.
- From January 1, 2025, up to $112.80 per week of the $1,128 threshold can be met similarly.
However, discretionary bonuses, which are given without prior contract, cannot be used to meet any part of the salary level requirement. If an employee does not earn enough in nondiscretionary bonuses within a year, employers may make a “catch-up” payment within one pay period to retain the exemption.
Protecting Your Business: The Importance of a Good Insurance Program
As businesses adapt to the new DOL overtime rules, it’s crucial to have a robust business insurance program in place. Employment Practices Liability Insurance (EPLI) can protect your business from wage and hour lawsuits, whether founded or unfounded. An EPLI policy covers legal defense costs, settlements, and judgments, and often provides risk management services to help ensure compliance with employment laws.
By securing a good EPLI policy, your business can mitigate the financial risks associated with employment-related claims, providing peace of mind and allowing you to focus on running your business effectively. For more details, visit our EPLI page.
State and Local-Specific Regulations
It’s important to note that state laws and local jurisdictions may have additional or different requirements beyond the federal regulations. Employers should ensure compliance with both federal, statel and local labor laws.
DOL Overtime Rule Changes Conclusion
The updated DOL overtime rules introduce crucial changes that impact the classification of exempt and non-exempt employees. Employers must adjust payroll practices and ensure compliance by the specified dates. By understanding and implementing these new rules, businesses can maintain compliance and support their workforce effectively.
Here is a lnk to the DOL website for the frequently asked questions when it comes to the overtime rules.