The Biden administration recently raised the salary threshold for workers to qualify for overtime pay. The new rule—which will go into effect in two stages, starting summer 2024—has the potential to impact millions of people across a variety of fields and professions.
“This is a really powerful change, and it’s going to result in a lot more workers being covered by the overtime requirements and the Fair Labor Standards Act,” says Tom Spiggle, a seasoned employment lawyer and the founder of Spiggle Law firm.
More money is certainly an exciting prospect—but what does it all really mean, and who exactly will it apply to? We have answers to all your burning questions about the new overtime pay rule.
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1. What is the new overtime pay rule?
Starting July 1, 2024, salaried employees making under $43,888 a year (or $844 a week) must be paid 1.5x their regular rate for every hour they work over 40 hours a week.
Six months later, on January 1, 2025, this threshold will rise to encompass workers who make below $58,656 a year, or $1,128 a week.
The new rule also states that every three years, beginning July 1, 2027, this threshold will be updated in accordance with the latest wage data.
2. What was the overtime pay rule before this change?
Most hourly workers qualify for overtime pay, but only salary workers under a certain threshold can earn it as well. What will change is that salary threshold.
Up until this point, the salary threshold to earn overtime pay was a yearly income of $35,568—a number that was last decided in 2019. (In 2016, under the Obama administration, the threshold was briefly set to $47,476 before it was blocked by a federal judge.)
The rule itself falls under the Fair Labor Standards Act (FLSA), which sets the standards around minimum wage, overtime pay, and other workplace concerns like child labor for all U.S. workers in both the private and public sectors.
While overtime pay is required for nonexempt employees who work more than 40 hours in a workweek under FLSA, there’s no limit to how many hours they can work within a seven-day period. FLSA also doesn’t require companies to pay for overtime on weekends or holidays, unless the hours go above 40 in a week.
The new rule increased the previous threshold by around $8,300. “It’s a pretty significant jump,” Spiggle says.
3. Why did this rule change?
In its announcement, the Biden administration stated that they wanted to even the playing field for salaried workers who make as much as their hourly counterparts, but maybe work more hours—and spend more time away from their families as a result.
The number the U.S. Department of Labor (DOL) came to, the announcement reads, is based on thousands of comments and input from employers, workers, unions, and other stakeholders. “This is really catching things up to meet what the intent of the law is: to make sure that people are fairly compensated, particularly when they have to work over 40 hours a week,” Spiggle says.
Spiggle points out that the increase could also be seen as a response to inflation and rising costs. “The numbers just were absurdly low,” he says. “Times change, numbers change, and the $688 weekly number is now outdated.”
4. Who qualifies for overtime pay under the new rule?
If you’re a classified non-exempt worker (more on that in a minute) making below $43,888 a year, or $844 a week, you will qualify for overtime pay starting July 1 of this year. If you’re a non-exempt employee making less than $58,656 a year, or $1,128 a week, you will qualify for overtime pay starting January 1, 2025.
To be considered a non-exempt employee who qualifies for overtime under FLSA, you likely meet some or all of these requirements, explains Dolly Clabault, an editor of human resources and employment law content at consultancy J. J. Keller:
- You are not paid a fixed or predetermined salary. In other words, your income might differ from week to week.
- Your annual salary is below the set threshold, which just went up per the new rule.
- Your job responsibilities match your title. “Employers can’t just say, ‘You know what, I’m just going to call you a manager so I can not pay you overtime,’” she says. “That won’t cut it.”
The previous salary threshold captured many service workers and individual contributors. Spiggle notes that now, the rule could apply to a new category of professionals, such as those higher up the organizational chain.
Overall, more workers will benefit from the change. According to an analysis by the Economic Policy Institute, a nonprofit think tank, the new rule will apply to 4.3 million employees. Clabault adds that estimates say 1 million more people than before will be impacted by the first increase in July, while another 3 million people will benefit from the second increase.
If you’re still unsure whether you qualify for overtime pay under this new rule, it’s best to contact your HR, or a trusted advisor, union, or employment lawyer.
5. What benefits can you gain from the new rule?
The obvious upside is that if you now qualify for overtime pay and tend to log more than 40 hours of work a week, you’re about to see a much bigger paycheck each month. (If you work a standard 40-hour workweek, however, you won’t see a difference in your income.)
The other perk to this rule change is that companies are going to be a lot more cautious about requiring employees to work longer than 40 hours in a week. If they want more labor, they have to pay more for it—and that can get expensive fast.
As the DOL hopes, you’ll possibly spend less time in the office (or on a worksite, or logging in remotely) and more time at home, with friends, family, hobbies, or whatever else is important to you personally.
6. Anything else to note about the new overtime pay rule?
Spiggle emphasizes that this law is for employers to bear—it’s not the burden of employees. If your company forgets to start paying you overtime or uses excuses for why they couldn’t meet this new rule, he says, that doesn’t absolve them of their obligations.
You can—and should—advocate for yourself if you see something off.
“Watch your paycheck,” he says, adding that the penalties against companies for failing to meet FLSA standards can come back to benefit workers. “You can get back wages, you can in some cases get two times the wages you were owed, you can get your attorney’s fees paid for.”
If you’re worried about state laws affecting your qualifications, know that FLSA trumps those as well.
Finally, with any new rule comes the likelihood of litigation and further discussion—as we’ve mentioned, changes to employment standards have been blocked before. While the rule stands as of now, it may not remain as-is in the long term. “You never know which way a court is going to roll,” Clabault says.
7. What do employers need to know about the new overtime rule?
Starting July 1, and again on January 1 of next year, employers must pay workers under the salary threshold time-and-a-half for any overtime hours they log. This means companies should be talking with their legal and accounting teams now to evaluate and alter their workers’ pay structures.
“The department is trying to make this easier on employers to have this two-stage rollout, but it’s two opportunities to make a mistake,” Spiggle says.
Spiggle also advises organizations to double-check that they’re correctly classifying employees and independent contractors on their teams. “If the Department of Labor says, ‘Nope, this person is an employee,’ and now you’ve got months or years of overtime pay that you owe them…it just makes it much more crucial for employers to be on top of that,” he explains.
Time is of the essence here. “They don’t have a whole lot of time,” Clabault says. “They’ve got to start looking at all their exempt employees and either increase their salaries to the threshold level—the new threshold level—or start paying them overtime.”