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Ask the Experts: Understanding the Department of Labor's New Overtime Salary Threshold
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Q: On July 1, 2024, a final rule of the U.S. Department of Labor (DOL) raised the minimum salary a business must pay certain employees to be exempt from federal overtime requirements. While the Rule significantly raises the minimum salary for various categories of “white collar” workers, as a hospitality business operator, what do I need to know about this change in the law?
A: Under the FLSA, overtime must be paid at a rate of at least one and one-half times the regular rate paid to a non-exempt employee for each hour worked in excess of 40 hours per week. For an employee to be exempt from being paid overtime (i.e., not eligible to be paid overtime) they must: (1) be paid a salary; (2) be paid a salary above a specified threshold; and (3) meet the defined duties of the specific exemption such as executive, administrative, or professional.
A: Under the FLSA, overtime must be paid at a rate of at least one and one-half times the regular rate paid to a non-exempt employee for each hour worked in excess of 40 hours per week. For an employee to be exempt from being paid overtime (i.e., not eligible to be paid overtime) they must: (1) be paid a salary; (2) be paid a salary above a specified threshold; and (3) meet the defined duties of the specific exemption such as executive, administrative, or professional.
In other words, these exemptions mean that certain employees who have important managerial roles, make consequential decisions, or have specialized education or skills may not qualify for overtime pay for working more than 40 hours per week. To qualify for an FLSA exemption from receiving overtime pay, these workers must also be paid a minimum salary, and it is that minimum salary threshold which was just increased by the new DOL rule. Prior to July 1,thesalary basis threshold was$35,568 per year($684 per week). After July 1, the new salary threshold is subject to the following schedule of increases:
Here are a few examples that may help put all of this into context for hospitality business owners. A restaurant may choose to classify a manager as overtime-exempt under the FLSA’s executive exemption if the manager’s primary duty is managing the establishment, the manager supervises at least two full-time employees, has the authority to hire and fire employees, and earns at least $844 per week. By way of another example, a hotel sales director might be classified as overtime-exempt under the FLSA’s administrative exemption if the employee’s primary duty is performing office or non-manual work directly related to the management or general business operations of the hotel, exercises discretion and independent judgment with respect to significant matters and meets the new salary basis threshold of at least $844 per week. Lastly, a chef may qualify as overtime-exempt under the FLSA’s professional exemption if the chef received specialized academic training, the chef’s primary duties involve work requiring advanced knowledge in a field of science or academic learning and is paid a salary of at least$844 per week. (Note, this exemption is more apt to apply to executive chefs or sous chefs with formal culinary education than an ordinary line cook, who would be less likely to qualify under this exemption).
These are general, theoretical examples of some types of hospitality employees who may qualify for certain FLSA exemptions based upon their specific day-to-day job duties. This is not meant to be a guarantee that employees with these titles will, in fact, qualify for a particular FLSA exemption.
These are general, theoretical examples of some types of hospitality employees who may qualify for certain FLSA exemptions based upon their specific day-to-day job duties. This is not meant to be a guarantee that employees with these titles will, in fact, qualify for a particular FLSA exemption.
The key takeaway is that the new rule may require employees to either increase an employee’s salary to maintain their overtime-exempt status or reclassify the employee as non-exempt. As such, employers should ensure that employees are properly classified as exempt or non-exempt based upon their job duties, and that they meet the new salary threshold of at least $844 per week. Employers should also review payroll records to identify any exempt salaried employees with earnings that fall below the new threshold. It is recommended to have an attorney who specializes in wage and hour law review your policies, employees ’ job duties and payroll records to help ensure compliance with this new rule, along with the myriad of other wage-related compliance obligations.
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