Overtime Salary Threshold: Department of Labor Announces Final Rule

Just yesterday, the U.S. Department of Labor (DOL) published its Overtime Final Rule designed to update and revise overtime protections for millions of workers employed by nonprofits, for-profits, and governments.

The final rule, set to start going into effect on July 1, 2024, increases the minimum salary level that employees must be paid to exempt them from overtime pay of time and a half of wages for hours worked in excess of 40 in any week.

In the fall, we posted about DOL's Draft Rule and opportunity for comments, encouraging nonprofits to conduct a mission-based analysis of how the proposed increases would affect operations, resources, staffing, and equity, as well as what impact the draft regulations would have on people relying on the services and the mission of the nonprofit.

So, What's in the Final Rule?

The Overtime Final Rule makes changes in three areas:

Standard Salary Threshold

1. On July 1, 2024, the standard salary threshold goes up to $844 per week/$43,888 per year from the current federal level of $684 per week/$35,568 per year. (Note: in Maine it is currently $42,450.20). This is essentially an inflation adjustment to the level set by the Trump Administration in 2019.
2. On January 1, 2025, the salary level then goes up again to $1,128 per week or $58,656 per year.
3. Beginning July 1, 2027, the salary threshold will be automatically adjusted for inflation every three years.

Highly Compensated Employee Total Annual Compensation Threshold

The Labor Department is also adjusting the special threshold for highly compensated employees, a threshold that reduces the level of needed scrutiny about the duties the individual employees must perform to be exempt.

1. On July 1, 2024, the threshold for highly compensated employees is adjusted for inflation from the current level of $107,432 per year to $132,964 per year. This new rate also requires that the individual must be paid on a salary or fee basis of at least the new standard salary threshold ($844 per week).
2. Starting January 1, 2025, the threshold for highly compensated employees goes up to $151,164 per year and requires that the individuals are also paid a minimum of $1,128 per week on a salary or fee basis. 
3. As with the standard salary threshold, the highly compensated employee salary threshold will be automatically adjusted for inflation every three years, beginning on July 1, 2027.

Automatic Adjustment

Finally, the new Overtime Rule includes a mechanism for the Department to adjust both the Standard Salary Threshold and Highly Compensated Employee Total Annual Compensation Threshold for inflation every three years. The next automatic adjustment will take effect on July 1, 2027.

The Overtime Final Rule will likely be challenged in court, as was an overtime rule published in 2016. The outcome of the litigation is unclear. 

Differing and Overlapping State and Federal Laws

Note that Maine has had a different standard for the overtime threshold for several years. While the federal threshold level is currently $35,568, in Maine it is currently $42,450.20, and it increases annually with inflation.

If the federal salary threshold is set at a rate that exceeds Maine's, employers in Maine would need to follow the higher standard.

This year, the Maine legislature considered state legislative changes (LD 513) which would increase the state threshold again. LD 513 was amended to mostly follow the draft rule that DOL released in the fall. The bill passed both the House and the Senate, and was sent to the Appropriations Table. When the legislature adjourned last week, they did not technically "run the table," which means they did not come to an agreement about which bills to fund outside of the budget. It remains unclear if the legislature will be able to act on those unfunded bills, or if they will die automatically.

If LD 513 is funded off of the Appropriations Table, and the Governor signs it, the minimum overtime salary threshold in Maine would be $55,068 starting January 1, 2025 -- even if the federal rules are put on hold due to lawsuits.

DOL is also proposing to automatically update earnings thresholds every three years. In Maine, the salary threshold changes annually with the minimum wage.

How does the overtime exemption work?

The Fair Labor Standards Act (FSLA) requires employers, including nonprofits, to pay their employees at least $7.25 per hour and to pay employees one-and-one-half times their regular rate of pay when they work more than 40 hours in a workweek.

Employees are currently exempt from the FLSA overtime pay requirement if they:

1. Are paid on a salary basis (meaning they are paid the same amount each week regardless of how many hours they actually work); and
2. Exceed a certain salary threshold; and
3. Exercise job duties that are classified as tests for administrative, executive, and professional.

Additional Resources

1. National Council of Nonprofits webpage on the DOL rule
2. Maine's website about overtime rules, for more information on the overlap between state and federal rules in this area
3. MANP will provide additional resources, including hopefully a national webinar and a list of compliance options, in the coming weeks

Thank you to the National Council of Nonprofits for their support in drafting this update.