On July 1, more than a million workers became eligible for overtime pay.
The 1938 Fair Labor Standards Act established a 40-hour workweek with certain workers eligible for overtime pay of 1.5 times their regular wage if they work past the 40-hour mark. Those exempt from the overtime rule are salaried employees making above a certain threshold who primarily perform "executive, administrative or professional duties," according to the Department of Labor.
Through the mid-1970s, the salary threshold for who was eligible for overtime was updated regularly "and over 65% of the salaried workforce was covered by overtime protections," says Judy Conti, director of government affairs at the National Employment Law Project. But since 1975, that threshold was only updated twice: in 2004 and in 2019. Before the rule change on July 1, only around 15% of salaried workers were eligible for overtime pay.
That's meant many low-wage workers are still working more than 40 hours per week and making very little money. "We see it in health care, we see it in janitorial, fast food, the food service and hospitality industry," says Conti.
Here's how that changed this month.
'This is for people that don't have' bargaining power
There are two groups of people affected by the recent change. First, there are these very low-wage, salaried workers.
Up until July 1, salaried workers making $684 per week, or $35,568 per year, or more were exempt from getting overtime pay. On that day, that threshold went up to $844 per week, or $43,888 per year. It covers about a million workers, according to the DOL.
The second group of people affected is "highly compensated employees," as the DOL calls them. Before the rule change, some workers making less than $107,432 per year could also qualify for overtime pay, though the parameters for qualifying are a little bit different from those given to low-wage workers.
Big picture, an employee making less than the new threshold who doesn't manage anyone else, whose job doesn't require them to exercise "independent judgment with respect to matters of significance," according to DOL, and whose job doesn't require advanced knowledge might qualify for overtime pay. The Labor Department offers various fact sheets and FAQs for anyone who wants to learn more.
The threshold went up to $132,964 per year on July 1.
"The whole point is when you make a certain amount of money, you have the inherent bargaining power to negotiate with your employer over wages, over hours, over duties," says Conti. That change for high earners "is for people that don't have that kind of bargaining power."
Ultimately, "this is not just about how much money somebody makes," says Jessica Looman, administrator of the Wage and Hour Division at DOL. "This is really about whether or not they get the protection of the Fair Labor Standards Act."
'Most employers absolutely do want to get this right'
The new rule is only the first part of a larger rollout of ongoing changes.
On Jan. 1, 2025, the threshold for low-wage workers will rise to $1,128 per week, or $58,656 per year, and the threshold for high wage earners will rise to $151,164 per year. That should cover another 3 million low-wage workers or so, says the DOL. Between the hikes in both July and January, about 292,900 highly compensated workers will also be affected.
Beginning July 1, 2027, earnings thresholds will be updated every three years.
The rule has already been challenged by businesses. Still, says Looman, "most employers absolutely do want to get this right."
Want to stop worrying about money? Sign up for CNBC's new online course Achieve Financial Wellness: Be Happier, Wealthier & More Financially Secure. We'll teach you the psychology of money, how to manage stress and create healthy habits, and simple ways to boost your savings, get out of debt and invest for the future. Start today and use code EARLYBIRD for an introductory discount of 30% off through September 2, 2024.
Plus, sign up for CNBC Make It's newsletter to get tips and tricks for success at work, with money and in life.
