Who is “Exempt” From Overtime Payments?

Federal law considers overtime legal, and all employees “non-exempt” from overtime pay unless they meet certain requirements. Generally, workers who are “exempt” from overtime pay are executive, administrative, professional, computer and outside sales employees.

The  federal Fair Labor Standards Act gives three tests—all of which an employee must pass—to determine whether or not a worker is eligible for overtime pay:

1. Salary-level test: If an administrative, professional, executive or professional computer employee’s weekly salary meets the minimum requirement—which is $684 per week—they are exempt from overtime pay.
2. Salary-basis test: The employee must be paid a fixed salary that cannot go up or down based on the quantity—or quality—of their work.
3. Duties test: The employee’s work duties must be considered executive, administrative, or professional duties in nature.

What Kind of Duties Satisfy the Third Test?

• Employees with executive duties manage an enterprise, a department, or a subdivision of an enterprise. They also regularly direct at least two employees’ work and either have the authority to hire or fire or are able to suggest or recommend doing so.
• Employees with administrative duties primarily perform office or non-manual work directly related to the business operations of the employer or the employer’s customers. To be considered exempt, their primary duties must include using discretion and independent judgment when it comes to significant matters.
• If an employee has professional duties, their work requires advanced knowledge in a certain type of field that is the result of specialized instruction or study. Or, they must be skilled in highly specialized fields such as computer analytics or engineering.

How Did Overtime Laws Change in 2024?

As the year 2024 approached, there was anticipation around adjustments to the United States’ overtime regulations under the guidance of the Department of Labor (DOL). These adjustments, proposed under the Fair Labor Standards Act (FLSA) guidelines, sought to modify the salary benchmarks that determine an employee’s eligibility for overtime compensation. Below are the essential proposed modifications:

1. Revision of Salary Benchmark for Exempt Employees: It was suggested that the weekly salary criterion for employees to be deemed exempt from receiving overtime compensation should be raised from $684 to $1,059.
2. Adjustment for Highly Compensated Employees: The proposed adjustment recommended increasing the annual salary level for exemptions applicable to “highly compensated” employees from $107,432 to $143,988.
3. Mechanism for Periodic Updates: An automatic update system was proposed to adjust the salary thresholds for exemptions under the FLSA every three years, reflecting the latest salary data.

These proposed updates aimed to broaden overtime pay eligibility to numerous employees who previously did not qualify. For example, certain individuals with annual earnings exceeding $143,000 might now qualify for additional pay for hours worked beyond 40 per week.

The DOL had set a tentative date of April 2024 for issuing the final regulations. Nonetheless, there was speculation that these new regulations might encounter legal opposition, as previous attempts to modify these rules had. The DOL was in the process of examining over 33,000 comments submitted in reaction to the proposed rule changes, which could potentially shape the final version and its implementation timeline.

How to Comply With The Overtime Laws?

First things first, evaluate your options and estimate how much each route will cost you. You can also choose different options for different employees. Does the employee typically work late? You might consider raising their salary. Does the employee typically work 40 hours a week? Reclassifying them might be the best option.

Revisiting your timekeeping policy to ensure accurate records is a good idea if you plan on reclassifying employees. Newly non-exempt employees may not know how to track hours worked, so make sure they know how to record their working hours properly.

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