Don’t Sleep on the New Overtime Rule! Use These 9 Steps to Navigate the Exemption Process

This is not hyperbole: a new overtime rule goes into effect that could single handedly destroy your business if you fail to understand and apply it.

The new rule will go into effect with phase 1 occurring on July 1, 2024 and phase 2 on January 1, 2025 that - overnight - will GREATLY increase the number of American workers who are eligible for overtime.

The new rule relates to the “White Collar Exemption” that, until now, has been easy to meet because the minimum salary threshold - $38,568 - has been so low. On July 1st, the new minimum jumps to $43,888 and on January 1st it jumps to $58,656. This means that employers will not be able to apply the White Collar Exemption unless they pay the relevant employee more than these minimums.

One of the most common misconceptions among employers is they can decide who they want to make eligible for overtime by choosing to pay the employee a salary or an hourly wage. This is a dangerous misunderstanding that can lead to invasive regulatory investigations, fines and penalties, and class action lawsuits.

To exempt an employee from overtime eligibility is an objective, employee-by-employee process that can become a complex maze for the uninitiated. But fear not! I've distilled ALL the various exemptions down to a 9 question test that will apply once the new rule becomes law.

1.  Is the employee’s primary duty making sales or obtaining orders or contracts for services or the use of facilities and is he/she regularly engaged away from the employer’s place of business?  If "yes", the employee is exempt from overtime under the Outside Sales exemption. If "no", go to the next question.

2.  Is the employee a doctor or lawyer?  If "yes", the employee is exempt from overtime under the White Collar exemption. If "no", go to the next question.

3.  Is the employee paid a salary?  If "no", the employee is eligible for overtime. If "yes", go the the next question.

4.  Is the salary at least $43,888 a year on July 1, 2024? (Up to 10% may come from non-discretionary bonuses if paid at least quarterly.)  If "no", the employee is eligible for overtime. If "yes", go the the next question. (Phase 2 of the rule will occur on January 1, 2025 when the salary threshold increases to $58,656.)

5.  Is the employee a computer professional whose duties include:

• The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;

• The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;

• The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or

• A combination of the aforementioned duties, the performance of which requires the same level of skills.

If "yes", the employee is exempt from overtime under the White Collar exemption. If "no", go the the next question.

6. Does the employee primarily engage in administrative duties, defined as:

• the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and

• performed with the exercise of discretion and independent judgment with respect to matters of significance?

If "yes", the employee is exempt from overtime under the White Collar exemption. If "no", go the the next question.

7.  Does the employee primarily engage in executive duties, defined as:

• managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;

• customarily and regularly directing the work of at least two other full-time employees or their equivalent; and

• having the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees must be given particular weight?

If "yes", the employee is exempt from overtime under the White Collar exemption. If "no", go the the next question.

8. Does the employee primarily engage in professional duties, defined as:

• performing work that either requires advanced knowledge in a field of science or learning, usually obtained through a degree, or that requires invention, imagination, originality, or

• having a talent in a recognized field of artistic or creative endeavor?

If "yes", the employee is exempt from overtime under the White Collar exemption. If "no", go to the next question.

9.  Does the employee receive total annual compensation of at least $107,432, (with at least $35,568 coming from salary and the rest either from commissions, non-discretionary bonuses, or other non-discretionary compensation) and perform at least one aspect of the administrative, professional or executive duties described above?  If "yes", the employee is exempt from overtime under the Highly Compensated Employee exemption. If "no", he or she is eligible for overtime.

Hopefully, this helps you understand and work through the process. As always, if you need help, reach out to me at tmckee@tmckeelaw.com or 615.916.3224.