This week, the Department of Labor (DOL) formally announced its final rule on overtime pay. The rule will increase the amount under which employees will be considered exempt from overtime pay from the current level of $35,568 to $43,888 on July 1, 2024, and to $58,656 on January 1, 2025. On July 1, 2027, an additional increase will go into effect based on a currently undefined formula, with automatic 3-year increases after that.
The long-standing exemption for teachers remains in place. Campus employees who provide instruction as their primary role will not be subject to the overtime threshold. Guidance on campus employees who are exempt from, or subject to, the overtime threshold was issued by DOL in 2018. This guidance is still in effect.
The Biden Administration initially proposed an increase in the overtime pay threshold in September 2023 that would have increased the threshold from $35,568 to $55,068 and included automatic 3-year adjustments based on a formula using the 35th percentile of salaried workers in the south. Based on the inclusion of this formula, the final rule was expected to be closer to $60,000. In addition, the final rule was expected to have a 60-day effective date that would have resulted in pay adjustments for the end of June, just prior to the start of a new fiscal year for many campuses.
The final rule, however, is different than expected and provides most institutions with some relief for the current fiscal year, and a few months to plan for the additional increase coming in January 2025. That increase, however, will be particularly difficult for many campuses to implement so soon after the initial increase. It gets the Biden Administration close to where it ultimately wants to be, and just slightly delays what will still be a sharp increase of the current threshold amount.
The final rule also includes an additional adjustment in July 2027, based on an undetermined formula and additional 3-year increases after that. How those adjustments will look could depend on the presidential election results. A new administration could change course from the direction a second Biden Administration would take, particularly if the adjustment formula is not determined until after this year.
Several employer groups are preparing litigation that could be filed shortly, and a court could strike down all or parts of the final rule. Since the outcome of these efforts is uncertain, campuses will need to continue preparing for compliance with the adjustment to $43,888 by July 1.