U.S. Department of Labor Restores and Extends Overtime Protections

U.S. Department of Labor Restores and Extends Overtime Protections
May 28, 2024 6 mins

U.S. Department of Labor Restores and Extends Overtime Protections

U.S. Department of Labor Restores and Extends Overtime Protections

The Department of Labor released a final rule increasing overtime protections for the standard salary level threshold for the “white collar" exemptions and the threshold for employees classified as Highly Compensated Employees. Employers need to prepare for these significant changes.

Key Takeaways
  1. The first increase to the minimum salary threshold to $844 per week ($43,888 per year) occurs on July 1, 2024 with a subsequent increase to $1,128 per week ($58,656) effective January 1, 2025.
  2. The ruling also establishes a means to increase and update these minimum thresholds every three years beginning on July 1, 2027.
  3. The final rule impacts the exemption status of over an estimated three million workers in the U.S. Employers will need to either reclassify these employees as non-exempt or significantly raise current base salaries to adhere to the rule.

On April 23, 2024, the United States Department of Labor (DOL) published a final rule revising the Fair Labor Standards Act (FLSA). The rule implements new exemptions from the minimum wage and overtime pay requirements for executive, administrative, professional, outside sales and computer employees. Notable changes include:

  • Increasing the standard salary level
  • Increasing the highly compensated employee total annual compensation threshold
  • Adding to the regulations a mechanism that will allow for the timely and efficient updating of the salary and compensation thresholds

While the rule will likely face legal challenges prior to its effective date of July 1, 2024, employers should take steps now to ensure employees are classified in line with the proposed changes and prepare to capture and report time for employees who may be reclassified as non-exempt as a result of the new rule.

Details of the New Rule

The rule increases the minimum salary threshold to $844 per week ($43,888 per year) on July 1, 2024, with a subsequent increase to $1,128 per week ($58,656) effective January 1, 2025. Employers can also expect triennial increases to the standard salary level beginning on the third anniversary of the initial implementation of this rule (July 1, 2027).

Employers will have until July 1, 2024, to either increase the pay of employees currently classified as exempt to be above the new threshold of $43,888 per year or reclassify those employees into the non-exempt status and begin to compensate for any overtime hours worked.

Raising the salary alone may not be enough to qualify the employee for exemption. Under the rule, white collar exempt employees must also satisfy their relevant “duties test” under the FLSA. Fortunately for employers this test remains unchanged under the new rule, but it must be considered alongside the simpler calculation of threshold pay.

The change on January 1, 2025, represents a roughly 65 percent increase from the present threshold. Employers may need to restructure strategic deployment of resources considering these thresholds as a large financial component of the profitability of a company.

Additionally, the final rule increases the minimum annual compensation threshold for Highly Compensated Employees (HCE) to $132,964 on July 1, 2024, and then to $151,164 on January 1, 2025. Much like the threshold for the standard salary level, the minimum annual compensation threshold for HCEs will also increase every three years beginning on July 1, 2027. Under the U.S. Tax Code, there are many exemptions allowing HCEs to be carved out of tax efficient schemes without penalty to the company. The increase to HCE threshold will limit how many employees are actually able to be carved out of a program.

Considerations for Companies in Light of the New Rule

Companies should consider taking the following measures to prepare for the changes associated with the new rule:

  • Assess Impacted Employees’ Compensation and Current Classification. HR and rewards professionals should review their employee populations in order to model the number of roles and individuals impacted as well as the scale of these impacts. Employers should be mindful of the July 2024 and January 2025 thresholds given the magnitude of the increases — particularly the increase in effect on January 1.
  • Establish the most Prudent Path Forward for Your Organization. Following the completion of the initial review of your organization’s impacted population, engage with business and finance leaders to determine the best path forward. Some employers may not be able to absorb the full financial impact of increasing wages to meet the threshold of the new ruling. For these employers, the impacted population will need to be reclassified to non-exempt and provided the federal and local protections of this classification — including at least time and a half for any overtime hours worked. While the financial impact of the overtime pay associated with this change should likely be less than increasing the salaries to meet the exemption threshold, companies should model this based on typical hours worked to ensure the financial implications of each decision are considered.
  • Determine the Immediate and Secondary Financial Implications of the Change. Employees who are being reclassified to non-exempt will need to be able to effectively document and submit their time to payroll for proper processing and payment of applicable hours. Employers and managers should be cognizant of any hours employees typically work that exceed daily and weekly thresholds for payment of overtime, consider the cost of implementing this tracking system more broadly, and audit the system regularly for completeness and accuracy.

    Where employers choose to increase base wages to meet the new thresholds established for otherwise exempt employees, pay compression is likely to occur with employees performing similar roles who are already at or beyond the new threshold. Compensation reviews for these employees and potential action may be necessary as well to ensure internal pay equity is maintained.
  • Evaluate the Less Visible Changes that Reclassification May Have on Your Organization’s Employees and Communicate Effectively. Reclassification to a non-exempt status and the need to track and report hours can often feel like a demotion to many employees. Employers should ensure communication centers around the benefit to the impacted employees in the sense that it guarantees all hours worked are compensated fairly.

    Many managers may not understand how to effectively monitor and manage the hours worked of a non-exempt workforce. HR and communications teams should work together to identify the managers and supervisors of impacted employees and facilitate any training needed to confirm proper review and submission of workers’ time.

    As always, timely, transparent communication with all impacted parties is a necessity to enhance understanding, build buy-in and maintain compliance with the rule as it continues to evolve moving forward.
How Aon Can Help:

Aon’s Talent Solutions practice has the expertise to help your company navigate the regulatory landscape and make timely, transformative and sustainable decisions. To learn more about how we help, please write to [email protected]. 

Aon's Thought Leaders
  • Amanda Benincasa
    Partner and Global Head of Corporate Governance, Talent Solutions
  • Anthony Scardino
    Director, Talent Solutions, North America
  • Kaileigh Serafini
    Consultant, Talent Solutions, North America

General Disclaimer

The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. This information is not a replacement for legal, tax accounting or other professional advice and no one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Terms of Use

The contents herein may not be reproduced, reused, reprinted or redistributed without the expressed written consent of Aon, unless otherwise authorized by Aon. To use information contained herein, please write to our team.

Aon's Better Being Podcast

Our Better Being podcast series, hosted by Aon Chief Wellbeing Officer Rachel Fellowes, explores wellbeing strategies and resilience. This season we cover human sustainability, kindness in the workplace, how to measure wellbeing, managing grief and more.

Aon Insights Series Asia

Expert Views on Today's Risk Capital and Human Capital Issues

Aon Insights Series Pacific

Expert Views on Today's Risk Capital and Human Capital Issues

Aon Insights Series UK

Expert Views on Today's Risk Capital and Human Capital Issues

Construction and Infrastructure

The construction industry is under pressure from interconnected risks and notable macroeconomic developments. Learn how your organization can benefit from construction insurance and risk management.

Cyber Labs

Stay in the loop on today's most pressing cyber security matters.

Cyber Resilience

Our Cyber Resilience collection gives you access to Aon’s latest insights on the evolving landscape of cyber threats and risk mitigation measures. Reach out to our experts to discuss how to make the right decisions to strengthen your organization’s cyber resilience.

Employee Wellbeing

Our Employee Wellbeing collection gives you access to the latest insights from Aon's human capital team. You can also reach out to the team at any time for assistance with your employee wellbeing needs.

Environmental, Social and Governance Insights

Explore Aon's latest environmental social and governance (ESG) insights.

Q4 2023 Global Insurance Market Insights

Our Global Insurance Market Insights highlight insurance market trends across pricing, capacity, underwriting, limits, deductibles and coverages.

Regional Results

How do the top risks on business leaders’ minds differ by region and how can these risks be mitigated? Explore the regional results to learn more.

Human Capital Analytics

Our Human Capital Analytics collection gives you access to the latest insights from Aon's human capital team. Contact us to learn how Aon’s analytics capabilities helps organizations make better workforce decisions.

Insights for HR

Explore our hand-picked insights for human resources professionals.

Workforce

Our Workforce Collection provides access to the latest insights from Aon’s Human Capital team on topics ranging from health and benefits, retirement and talent practices. You can reach out to our team at any time to learn how we can help address emerging workforce challenges.

Mergers and Acquisitions

Our Mergers and Acquisitions (M&A) collection gives you access to the latest insights from Aon's thought leaders to help dealmakers make better decisions. Explore our latest insights and reach out to the team at any time for assistance with transaction challenges and opportunities.

Navigating Volatility

How do businesses navigate their way through new forms of volatility and make decisions that protect and grow their organizations?

Parametric Insurance

Our Parametric Insurance Collection provides ways your organization can benefit from this simple, straightforward and fast-paying risk transfer solution. Reach out to learn how we can help you make better decisions to manage your catastrophe exposures and near-term volatility.

Pay Transparency and Equity

Our Pay Transparency and Equity collection gives you access to the latest insights from Aon's human capital team on topics ranging from pay equity to diversity, equity and inclusion. Contact us to learn how we can help your organization address these issues.

Property Risk Management

Forecasters are predicting an extremely active 2024 Atlantic hurricane season. Take measures to build resilience to mitigate risk for hurricane-prone properties.

Technology

Our Technology Collection provides access to the latest insights from Aon's thought leaders on navigating the evolving risks and opportunities of technology. Reach out to the team to learn how we can help you use technology to make better decisions for the future.

Top 10 Global Risks

Trade, technology, weather and workforce stability are the central forces in today’s risk landscape.

Trade

Our Trade Collection gives you access to the latest insights from Aon's thought leaders on navigating the evolving risks and opportunities for international business. Reach out to our team to understand how to make better decisions around macro trends and why they matter to businesses.

Weather

With a changing climate, organizations in all sectors will need to protect their people and physical assets, reduce their carbon footprint, and invest in new solutions to thrive. Our Weather Collection provides you with critical insights to be prepared.

Workforce Resilience

Our Workforce Resilience collection gives you access to the latest insights from Aon's Human Capital team. You can reach out to the team at any time for questions about how we can assess gaps and help build a more resilience workforce.

More Like This

View All
View All
Subscribe CTA Banner