The first change in the federal overtime rule is set to go into effect in one week on Monday, July 1. Under the U.S. Department of Labor's recently released new overtime rule, any workers making less than $844 per week ($43,888 annualized) must be paid overtime wages for any hours worked in excess of 40 in any particular week, regardless of their job responsibilities. This marks an increase from the current threshold of $684 per week ($35,568 annualized) set by the DOL back in 2020.

A coalition of business groups, including NACS, has filed a legal challenge to the new rule in federal court in Texas but there has not been any action taken in that case yet—meaning the first increase under the new rule remains scheduled to go into effect.

Employers should be ensuring that their payroll systems are prepared to adjust for those employees who may currently be exempt from the overtime rule but may find themselves non-exempt on July 1. Any salary adjustments or shifts to hourly pay planned should be clearly communicated to any impacted employees ahead of the change. Clear communication will be important in managing employee reactions to any changes.

It is also important to remember that, barring any intervention by the courts, this is just the first of two salary adjustments under the new rule, and the second will be significantly more dramatic. DOL chose to use the two-step process to try and insulate it from some legal challenges.

Starting on January 1, 2025, DOL will change the methodology via which they calculate this wage threshold away from what has been used for the past few decades. The result of this change will result in anyone making less than $1,128 per week ($58,656 annualized) being declared non-exempt. In fact, that threshold could end up higher due to inflation and other factors.

Back in 2016, a federal judge in Texas invalidated the Obama Administration's attempt to make a similar change in the overtime threshold, declaring that their version of the rule would make the salary component the de facto primary factor of the rule when the statute requires that it’s primarily based on a worker's actual job responsibilities. NACS, and the other business groups who have filed suit against the current rule, are hopeful for a similar ruling prior to the rule going into effect, or at least prior to the January 1 change.