More People Eligible for Overtime – Are You Ready?
By VICKY BROWN
You may have heard that effective July 1st – the new overtime rule kicks in. That’s right – the Department of Labor has recently updated the eligibility for a job getting overtime or not. Now what are you supposed to do?
OK, so let’s start with some of the basics. There are basically 2 classifications of jobs in the US, jobs eligible for overtime (also known as non-exempt) and jobs that are not eligible for overtime (known as exempt). Now keep in mind – all this refers to the job, not the person – because everything turns on the specifics of the job. But to make things a bit easier, and more familiar, going forward I’m going to refer to the employee vs. the job.
So we have 2 categories – but what makes one person exempt and another non-exempt. Well, the Dept of Labor considered every job in the country eligible for overtime – meaning non-exempt. And the only way to ‘opt out’ of being non-exempt is by having the job hit certain criteria. Officially speaking, it’s the duties and wage tests.
The job duties have to meet certain levels and additionally the salary or wages, have to hit a certain level. On the job duties side there are, broadly 6 exempt categories. They are:
- Executive
- Administrative
- Professional
- Computer Professional
- Outside Sales
- Highly Compensated
Here’s a really quick – general – overview of each category:
First up – Executive – among other things, the person must direct the work of at least 2 or more other full time employees. So, that means having authority over them, giving them work, evaluating performance, recommending to hire or fire, or actually hiring or firing.
Next – the Administrative category. NO this doesn’t mean Administrative Assistant.
The Administrative exemption is for jobs that involve management of your, or your customer’s, general business operations. It also has a special phrase the regulators use “includes the exercise of discretion and independent judgment with respect to matters of significance’. Everybody always asks me what that means, and it’s such a hazy statement, I have to refer them directly to the department of labor’s explanation:
In general, the exercise of discretion and independent judgment involves the comparison and the evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered.
There’s more, but you get the idea. I’ll put the link to the actual Dept of Labor overview in the description.
“… if you have a bookkeeping job, but the person you have in the job is a CPA, that DOES NOT mean the job meets the Professional exemption.”
Onward to the next category – Professional
This category also isn’t necessarily what it sounds like. Sure, we are all professionals, or at least we try to be. But this exemption category is for LEARNED professionals – so, among other things, the job must require advanced knowledge in a field of science or learning, kind of like a CPA. Now, let me be clear, if you have a bookkeeping job, but the person you have in the job is a CPA, that DOES NOT mean the job meets the Professional exemption.
All these exemption categories apply to the minimum requirements of the position, not the knowledge or experience of a person who may have the job right now. If it isn’t a requirement to hold a CPA, but it’s a nice to have – I’m afraid that job is still considered non exempt.
Next up – Computer Professional
This one is closer to what you think it is, but with a twist – of course. It’s an analyst, computer programmer, engineer etc. It is not someone who manages and fixes workstations.
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Surprisingly, the Outside Sales exemption is precisely what it sounds like. The job has to be sales done outside the employers place of business. So if you have someone doing cold calls from your office, that would not qualify.
And finally – the Highly Compensated position.
Much more on this one later.
Now again, keep in mind, you have to see how the job stacks up against the exempt categories to figure out if the it qualifies as exempt (again, meaning not eligible for overtime) or non exempt (meaning eligible for overtime).
Now, in addition to the criteria we just talked about, the Executive, Administrative and Professional exempts have a minimum wage that has to be paid – otherwise the person is automatically considered overtime eligible.
And that’s the crux of it all – the Dept of Labor is changing that minimum wage. It used to be $684 per week, but effective July 1, 2024 it’s moving on up to $844 per week. And that’s not all. The Highly Compensated category has a minimum amount – and it’s changing too. It used to be that people making $107,432 per year were considered highly compensated and exempt. But now you have to make at least $132,964 a year to sit in the Highly Compensated category. So if you make less than that, the only way you would be considered exempt from overtime is if you qualify under one of the other categories.
So, what should you do to manage this big shift?
Well, in next week’s episode I’ll lay out a roadmap to help you navigate these new changes.