New Employment Law Regulation Makes Many More Employees Eligible for Overtime

The Wage and Hour Division of the United States Department of Labor has issued a new regulation vastly increasing the number of employees who are entitled to overtime.

Background

Both Federal and New Jersey employment law both require that employees must be paid one and a half times their regular hourly rate (“time courthouse-1223280__340-300x200 and a half”) for work beyond forty hours in any week. However, there are exceptions. The major exemptions are for executive, administrative, professional, and highly compensated employees. In addition to the requirements particular to each exemption, the employees cannot be paid less than the threshold for the exemption.

Executive Exemption

The requirements for an employee to be exempt from overtime and minimum wage as an executive are:

The employee is paid on a salary basis;
Her primary duty is managing the enterprise or a department or subdivision of it;
She must regularly direct the work of at least two full-time employees;
She must have authority for hiring, firing or promotion; and
Be paid more than the salary threshold.

Administrative Exemption

The employee is paid on a salary or fee basis;
Her primary duty must be office or non-manual work “directly related to the management or general business operations of the employer or the employer’s customers”;
She must exercise discretion and independent judgment in significant matters; and
Be paid more than the salary threshold.

Professional Exemption

Essentially, the employee must be a “learned professional.” This means that:
She must be paid on a salary or fee basis;
Her work must require advanced knowledge which is primarily intellectual and requires the exercise of discretion and judgment;
She must work in a field of science or learning;
The advanced knowledge required in her field must customarily be obtained through a prolonged course of specialized intellectual instruction; and
Be paid more than the salary threshold.

Highly Compensated Employee Exemption

The employee must perform office or non-manual work;
She must regularly and customarily perform at least one of the duties of an exempt administrative, executive or professional employee; and
She must paid more than the salary threshold.

Salary Thresholds: The New Regulations

Administrative, Executive and Professional Exemptions. Previously, the salary threshold was $684 per week, or the equivalent of $35,658 per year. Thus, if an employee made less than $684 per week or $35,658 per year, she was not eligible for the exemption (ie., she was “non-exempt”), and was required to be paid overtime. The new regulations raise these thresholds effective July 1, 2024. On July 1^st, the threshold will increase to $844, or the equivalent of $43,888 per year. Effective January 1, 2025, the threshold will increase to $1,128 per week, or the equivalent of $58,656 per year. On January 1, 2027, and every three years thereafter, the threshold will increase based on available salary data.
Highly Compensated Employees Exemption. The current exemption level is an annual salary of $107,432 per year, with a minimum of at least $684 per week paid on a salary basis. On July 1, 2024, that will increase to a minimum of $132,964 per year, with a minimum of $844 per week. On January 1, 2025, this will increase to $151,164 per year with $1,128 per week. On January 1, 2027, and every three years thereafter, the threshold will increase based on available salary data.

Bottom Line

The net effect of this new regulation will be to make an enormous number of new employees required to be paid overtime. Failure to pay overtime or misclassification of employees can have enormous financial consequences. It is important that employers comply with these new regulations. It is also important that employees are aware of their rights.

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