Final Overtime Rule Is Right Around the Bend Now

Author: Michael Cardman, XpertHR Senior Legal Editor

March 4, 2024

The US Department of Labor (DOL) has submitted its long-anticipated overtime rule to the White House for a final review.

This marks the next-to-last step in the nine-step federal regulatory process.

The White House's Office of Management and Budget (OMB) has at least 90 days to review the overtime rule. Once its review is complete, the DOL will need to make any changes requested by the OMB before it issues a final rule.

The DOL currently plans to have the rule take effect 60 days after it is finalized - significantly less time than the 96- to 192-day windows it gave to employers during the previous three overtime rules. The DOL said it believes that 60 days will give employers plenty of time to prepare because they are familiar with what needs to be done after the 2019 overtime rule and because "changed economic circumstances have caused a strong need to update the standard salary level."

It is unlikely that the final rule will differ significantly from the draft rule proposed last September. Nevertheless, the final rule will settle one important question on the mind of many employers: namely, what will be the initial salary threshold?

The overtime rule will increase the minimum annual salary for most exempt employees paid on a salary basis from $35,568 per year to match the 35th percentile of weekly earnings of full-time nonhourly workers in the lowest-wage Census Region. The DOL had projected that this number will land somewhere between $55,068 per year and $60,209 per year.

It is possible the initial salary threshold might be even higher than $60,209 per year. To arrive at the high end of its projected range, the DOL took the 35th percentile of weekly earnings of full-time salaried workers in the South from the first quarter of 2023 and increased it by 4.5% (which was the Congressional Budget Office's projection of the rate of growth for private workers' salaries for 2023). However, recent data from the Bureau of Labor Statistics show that median weekly earnings increased by 5.5%, a full percentage point higher. At that rate, the threshold could come in as high as $60,785 per year.

The final number will have important implications. Employers of any of the estimated 3.4 million overtime-exempt employees who make less than the new minimum salary will need to either raise those employees' salaries or reclassify them as nonexempt.