While many states may have their own rules regarding overtime-exempt salary thresholds, every employer should be aware of the rules under the Fair Labor Standards Act (FLSA).
In order to accurately pay out employees, you need more than just modern payroll software. You need to know the rules regarding overtime and overtime exemptions.
Here is what you need to know regarding the federal overtime-exempt salary threshold for the foreseeable future.
On July 1st, 2024, the federal salary threshold for overtime exemptions increased to $844 per week. ($43,888 annually).
In other words, any workers who met the definition of an executive, administrative, or professional employee under the FLSA must also have made at least $844 per week in order to be exempt from federal overtime requirements.
Note: Each state is different, so it is important to know the overtime laws and requirements of your state as well. For example, here is what you should know on Washington Overtime laws.
Additionally, there were extra provisions for highly compensated employees (HCE). On July 1st, 2024, an HCE was exempt from overtime requirements if they made $132,964 per year, and made at least $844 per week.
On November 15, 2024, the U.S. District Court for the Eastern District of Texas invalidated a U.S. Department of Labor (DOL) regulation that raised the salary threshold for the "white-collar" overtime exemption under the Fair Labor Standards Act (FLSA). This decision applies nationwide, rendering the rule ineffective. This ruling not only cancelled the scheduled increase for 2025, but also reversed the increase that took place earlier in 2024.
As a result of the court ruling, the overtime-exempt salary threshold for 2024, 2025, and the foreseeable future is $684 per week ($35,568 annually). This threshold reflects the most recent update that is still in effect, made in 2019.
The Department of Labor (DOL) announced a proposed update to the federal salary threshold for overtime exemptions on August 30th, 2023. The U.S. Department of Labor announced a final rule regarding new exempt salary thresholds for the standard salary level, and the highly compensated employee total annual compensation threshold on April 23, 2024.
Prior to July 1st, 2024, the federal salary threshold for overtime exemptions was $684 per week. ($35,568 annually). HCEs were exempt from overtime requirements if they made $107,432 per year, and made at least $684 per week.
Important for businesses to know is that nondiscretionary bonuses, commissions, and other incentive payments may satisfy up to 10% of the threshold.
Example:
If an employee receives $136.80 a week in incentive payments, only half counts toward the threshold ($68.40).
Furthermore, let's say that same person makes $750 per week. That would make their total weekly compensation $886.80, over the threshold. However, since part of that sum is beyond the allowed incentivized portion, their total weekly compensation in regard to overtime exemption is only $818.40, under the threshold. Thusly this employee would not be exempt from overtime.
Earlier this year, the U.S. Supreme Court made a new decision regarding overtime exemptions.
In the case of Helix Energy Solutions Group v. Hewitt, an employee was found to be eligible for overtime as a result of being paid on a daily basis, as opposed to weekly.
The mentioned employee's total weekly compensation was over the salary threshold, but as a result of being paid daily, the court ruled that "the defendant company didn't pay a salary as defined under the FLSA, and therefore a highly compensated employee was not exempt".
What is important here is simple, in order to be exempt from overtime an employee must be paid, at most, on a weekly basis.
It is quite possible, depending on the nature of your business, that tracking overtime exemptions can be really difficult.
While the below factors are great practices to help manage overtime exemptions, it is also important to track and manage overtime in itself, something easily achievable via a modern time and labor system.
Here are some key reminders for successfully and efficiently tracking worked hours for your employees:
Overtime, if not handled properly, can land your business in a world of hurt and legal trouble. To avoid hefty fines and penalties, don't stop with the above list of reminders.
For starters, ensure you choose a payroll and HR system that is right for your business. One that can save time on HR tasks, and keep track of overtime eligibility, compensation, and hours worked.
To learn more about what solutions are available from PayNW, contact us today.
Improperly paying out overtime is one of the biggest mistakes that companies can make regarding payroll. Download our guide on avoiding payroll mistakes to learn more, or click the link below.