On April 23, 2024, the U.S. Department of Labor (DOL) announced a final rule on overtime that will make changes to who is exempt from overtime. It increases both the standard salary threshold to be able to receive overtime, and the threshold to be exempt from overtime. It also establishes a mechanism where these thresholds will be adjusted for inflation every three years. The rule goes into effect July 1, 2024.
Nonprofits employ over 10% of the private workforce, and many are likely to be affected by the new rules. Here is a brief summary of what is included in the DOL final rule:
Increase in the Salary Threshold for Certain Exemptions
Under the current executive, administrative, or professional (EAP) exemption from overtime pay, an employee must be paid at least $684/week ($35,568 annually). This rule will increase the threshold in installments:
- Beginning July 1, 2024, the salary threshold will increase to $844/week ($43,888 annually).
- Beginning January 1, 2025, it will then go up to $1,128/week ($58,656 annually).
- Beginning July 1, 2027, the threshold will begin to automatically adjust for inflation every three years.
At these dates, employees paid below these salaries will be eligible for overtime.
Increase in the Annual Salary Level for Employees to Qualify for the Highly Compensated Employee (HCE)
Under the current HCE exemption from overtime, employees earning a minimum of $107,432 annually are exempt from overtime. This rule will increase the minimum salary threshold in installments:
- Beginning July 1, 2024, the salary threshold is adjusted for inflation from the current level of $107,432/year to $132,964/year.
- Beginning January 1, 2025, it will then go up to $151,164 per year, requiring individuals be paid a minimum of $1,128 per week on a salary or fee basis.
- Beginning July 1, 2027, the threshold will begin to automatically adjust for inflation every three years.
At these dates, employees paid below these salaries will be eligible for overtime.
Automatically Adjust Thresholds Every Three Years
Starting July 1, 2027, both the Standard Salary Threshold and Highly Compensated Employee Total Annual Compensation Threshold will be adjusted for inflation every 3 years.
Impact on Nonprofits
The final rule does not create an exemption for either thresholds for nonprofits.
The National Council of Nonprofits analysis states that the DOL estimates that the final rule will convert 460,000 nonprofit workers from exempt to non-exempt, and that it projects a total cost of $44.8 million to nonprofit employers, averaging $1,777 per entity in the first year.