You May Soon Be Entitled to Overtime Pay

The Fair Labor Standards Act determines whether an employee is entitled to overtime pay for time worked in a standard work week by examining job duties, how workers are paid, and how much they are paid.  Individuals making less than an established threshold are entitled to overtime pay at 1 ½ times their standard rate.  While this is fairly straightforward when workers are paid on an hourly basis, it’s a bit more complicated for salaried employees in certain roles including executive and administrative positions, professional positions, outside sales personnel, and computer professionals. 

The U.S. Department of Labor has increased the Fair Labor Standards Act’s (FLSA’s) annual salary-level threshold to qualify for overtime.  As of July 1, 2024, most salaried workers earning less than $43,888 per year will be eligible for overtime. On January 1, 2025, this threshold will again increase to $58,656/year and the eligibility threshold will continue to be updated every three years.

The FSLA has also increased the earnings threshold for the highly compensated employee exemption (“HCE exemption”) to $132,964 per year on July 1^st and to $151,164 on January 1^st, 2025.Employees earning less than the annual salary threshold will be subject to the FLSA’s minimum wage and overtime regulations. A highly compensated employee (HCE) is defined as one who owned more than 5% of the business at any time during the year or the preceding year, and/or received a high level of compensation in the prior tax year (as indicated above) and was in the company’s top 20% in pay.

The Backstory

To be exempt from overtime under the FLSA’s “white collar” executive, administrative and professional exemptions employees must be paid a salary of at least the threshold amount and meet tests evaluating their responsibilities and duties. If they are paid less or do not meet the tests, they must be paid 1 1/2 times their regular hourly rate for hours worked more than 40 in a workweek.

Why it Matters

Since this legislation pertains only to employees, let’s start with the definition of an employee.  If you are on a contract assignment and being payrolled by a third-party you are an employee of that third-party for the duration of the assignment. 

• If you were placed on an assignment by a staffing agency, you are an employee of that staffing agency, and the agency will issue a W-2 statement to you at the end of each year. 
• If the client utilizes an Employer of Record firm to onboard you and administrate payment you are an employee of the Employer of Record for the duration of the assignment and the Employer of Record firm will issue a W-2 statement to you at the end of each year. 

In essence, unless you are not a freelancer or independent contractor you most likely are an employee, and the employer should have conducted an evaluation to determine whether you are eligible for or exempt from overtime payments.

The Path Forward

If you fall into the definition of “white collar worker” and the threshold increase will exceed your current annual earnings, your Employer of Record may elect to either raise your salary, enabling you to maintain your exempt status, or must classify you as non-exempt and begin paying for overtime. If your salary is not raised above the new threshold, your Employer may limit overtime costs by curtailing the hours you work.

The Employer should give you advance notice of any change, and – if your status changes to non-exempt – training should be made available on record keeping requirements, timekeeping procedures, overtime approval policies and related policies.  Keep in mind that, while the FLSA is adjusting wage thresholds, no other changes have been made to classification standards.

There will be legal challenges to try to block this rule. You should also track the status and ask your Employer for regular updates.