Labor and Employment

Do I Have to Pay My Staff Overtime?

By Edward J. Krill

On April 23, 2024, the Department of Labor published revised Regulations governing the exemptions from entitlement to overtime for salaried employees. The minimum dollar amount of compensation required for exempt status increases to $43,888, ($844 per week) effective July 1, 2024, then to $58,656 ($1,128 per week) on January 1, 2025 and thereafter based on the cost of living. The exemption for highly compensated employees is increased to $132,964 per year.

Therefore, some of your staff may have to be converted from salary to hourly pay and paid overtime. This article discusses your options regarding these changes.

Remember that exemption from overtime requires two factors:

a) employee compensation must be on a salary basis and in excess of the minimum dollar amount; and,

b) the work must be of a certain character, i.e, administrative, executive, managerial or professional.

To illustrate the second requirement: a physician is clearly a professional but performing stocking services in a retail store is not professional work. Therefore, in the example, an exemption is not available.

The most common basis for exemption, assuming the compensation level is met, in an office-based organization are the executive and administrative bases. As explained below, these are technical terms, not to be understood as having the same meaning as in common discourse.

The basis for exemption should meet these requirements:

a) the work activity is the employee’s primary function, doing other work on an unsubstantial basis is permitted;

b) job descriptions and titles have little bearing on whether an employee is performing exempt functions;

c) hour of work expected and presence in the office can be required but reducing compensation for failure to meet such standards is problematic;

d) record keeping that shows time and activity can be helpful if an exempt classification is questioned; and,

e) employee policies regarding leave and absence from work as they affect compensation are essential to avoid conflict.

Given the expectation that over four million salaried employees are predicted to lose their exempt status and become entitled to overtime, a review of salary-based positions is recommended.  It is also expected that the Department of Labor, Wage and Hour Division, will be devoting increased time and attention to these changes and to enforcement activity.

FLSA History

The Fair Labor Standards Act, which is the basis for minimum wage and overtime pay requirements, was enacted in 1938. 29 U.S.C. §213(a)(17).  By 1949, most of the content of the current Regulations, 29 CFR Part 541, was in place and has not been substantially modified.  See 14 FR 7705.  The only significant recent change was the addition of standards that permit exemption from overtime for computer systems analysts, programmers, software engineers, and other computer and internet information technology workers, when paid at least $27.63 per hour. (Public Law 101-583, 1990)

Overtime Exemptions

Exemptions from the requirement to pay overtime have been regularly recognized by the Department of Labor for workers paid on a salary basis who are viewed as senior management, supervisory and degreed professionals, especially when performing discretionary duties on an independent basis, implementing and interpreting company policy or directing the work of others. 

Regulations  29 C.F.R. Part 541

The current Regulations lay out simplified, functional definitions for the three traditional exempt categories of: executive, administrative and professional employees, and eliminate highly technical distinctions that have long ceased to describe the modern workplace. 

The Regulations are divided into eight major parts, with sections that provide an overview of their application, include definitions and explain the requirement to pay on the basis of a salary.  There is one set of criteria for each type of exemption, and the examples of how the regulations apply to different situations have been simplified. 

Executives § 541.100  

Exemption from the payment of overtime based on “executive” status requires that the individual have the primary duty of managing the business of the employer on an overall basis or in the department, separate location or other subdivision of the employer’s operations. An employee in “sole charge” of a separate work site, department or division would normally qualify as an exempt executive under the changes. The executive must also regularly direct the work of at least two other employees and have either the authority to hire and fire employees or have a substantial role in the hiring, firing, promotion, advancement and work assignment of other employees.

The work must be primarily non-manual.  Management duties include hiring, training, supervising, evaluating, disciplining, assigning work, conducting financial transactions and overseeing the production of products. The exemption for working “foreman” is described as that of a working “supervisor” who directs the work of at least two employees.

Administrative Positions § 541.200     

Administrative employees are defined as those “in a position of responsibility” with the “primary duty of performing office or non-manual work related to the management or business operations of the employer.  This is a functional definition requires “discretion and independent judgment.” An administrative employee must now exercise discretion and independent judgment on matters of significance to the employer.

The Regulations §541.201(b) in list categories of workers who would normally qualify as performing exempt administrative services.  The listed job classifications focus on job function and include employees in a position of responsibility in the tax, finance, accounting, budgeting, auditing, quality control, purchasing, procurement, advertising, marketing, research, insurance, safety, health, human resources, employee benefits, labor relations, public relations, security, Internet and database administration, regulatory compliance and grievance resolution.

A “position of responsibility” is one in which the work is of “substantial importance” or requires a “high level of experience, skill or training.”  These functions  are considered of substantial importance to the business.

The functions seen as exempt administrative activities when conducted with discretion and independent judgment include: formulating management policies, interpreting and advising regarding company policy and practice, providing expert technical advise or consultation to management, making decisions that have a substantial impact on business operations or on the company’s financial situation, reviewing and recommending changes in business and methods of operation, planning for short or long range business objectives, and preparing reports for senior management on business issues. 

Therefore, the “administrative” exemption has been broadened somewhat to include most of those who are considered mid-level “management” employees and those who independently perform services for management that require sophisticated decision making or technical skill.

Professionals §541.300

Professional employees have traditionally been thought of as those with a degree and a license to practice one of the “learned professions” of law, medicine, architecture, engineering, psychology, teaching, counseling and creative artists. The work of an exempt professional must be non-manual labor.  The exemption was established in the past by looking for a diploma and license to practice. This basis for exemption has never included the skilled manual trades such as the electrician, plumber or HVAC technician, however “professional” they have become.  

The major change is to view employees as a “learned professional” if they primarily perform intellectual work requiring advanced knowledge in a field of science or learning that is customarily obtained by a “prolonged course of specialized intellectual instruction.” It no longer matters whether an employee has acquired that knowledge via instruction in an educational institution or by means of some instruction plus work experience. The test is whether the person possesses and uses the level of advanced knowledge typically acquired with an academic degree that is required by the profession, regardless of how acquired.    

This new approach recognizes workers who took some courses, received additional training in seminars and workshops, engaged in self-study and had years of experience to the point where they could do the work of an individual who had just completed the traditional on-campus program and passed the licensing exam.  Therefore, a highly skilled (college level degree or technical specialization) paralegal, medical technician, draftsperson, structural designer, instructor or similar worker can be paid a salary and considered exempt from overtime under this liberalized approach.  Whether or not the person has a degree and license is no longer a barrier to exempt status in fields where the training for the job can be either formal or on the job.

Creative Professional § 541.302

The exemption applicable to those in the artistic fields remains essentially unchanged.  The description of the artistic professional is any employee “..with the primary duty of performing work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.”   The employees of organizations in the fields of music, writing, acting and the graphic arts are covered by this exemption when engaged in work requiring imagination, originality or talent.

Teachers § 541.303    

The “professional” exemption available to teachers includes consolidated all teachers and instructors are exempt if their duties are primarily to instruct students in the classroom.  There is no minimum salary requirement applicable to teachers.

Computer Science §541.400

Computer professionals are those persons who have a primary duty of performing work requiring the “theoretical and practical application of highly specialized knowledge in computer systems analysis, programming or software engineering.”  The Regulations further specify that the individual must consistently work on an independent basis and must be paid at least $455 per week on a salary basis or $27.63 on an hourly basis.

Outside Sales §541.500

Outside salesmen who work away from the employer’s place of business by primarily making sales, obtaining orders for goods or services, marketing and display activities and conducting sales meetings and conferences are exempt.  Special rules apply to commission sales personnel.

Law and Medicine § 541.600(e)

Those who hold a license to practice either law or medicine and are actually doing so are exempt regardless of salary or compensation and that includes medical residents and interns in training programs.

Highly Compensated Employees § 541.601

A new exempt category of “highly compensated employee” has been added.  If an employee earns at least $132,964, generally performs some executive, administrative or professional duties the employee is deemed exempt from the payment of overtime.  This basis for exemption is available for employees who do not meet all of the separate requirements of any of the three exempt classifications, i.e. executive, administrative or professional employment.

“Salary” Defined § 541.602 and 603

The requirement to pay all exempt employees on a salaried basis has been liberalized considerably, perhaps to conform to the reality of current employment practices.  Employers have on occasion reduced the pay of salaried employees for an array of reasons, sometimes by a full day or in hourly increments.  These reductions have been for quasi-disciplinary reasons such as coming in late, leaving early or taking a day off without a good excuse.  It has been believed that this practice creates a risk that the employee’s exempt status could be lost and overtime payment due.

The Regulations make it possible for employers to continue the practice of reducing pay for disciplinary reasons without risking loss of that employee’s exempt status as a salaried employee. Currently, disciplinary suspensions of less than one week are permitted only for serious violations of safety rules. The new Regulations permit employers to impose full day disciplinary suspension without pay for additional serious misconduct such as sexual harassment or workplace violence, without risk to the exemption from the obligation to pay overtime.

In the past, weekly salary compensation could not be subject to any reduction based on the “quality or quantity” of the work performed.  This was uniformly interpreted to mean that if an employee worked any part of a week, they were entitled to be paid for the entire week.  If an employee elected to take leave time in accord with a written plan, payment for that time off could be governed by the plan.  Under the Regulations, if a salaried employee is absent for a full day for personal reasons, not sickness or injury, an exception to the normal rule permits a reduction of one whole day’s pay, if that was the employer’s formal published written practice. 

Absences for full days of sickness or disability may reduce pay when, in accord with a formal written plan, other compensation is provided to the employee.  Thus if an employer has a short term disability program, the employer need not pay a salaried employee for the “waiting period” before benefits begin, for the period of benefits or for the period after STD benefits are exhausted.  State paid leave laws may apply to change this.

There are other pay adjuster practices that could be seen as inconsistent with the salary basis for compensation.  In the past, there was some concern that a single event of, for example, improperly reducing a salaried employee’s pay by a number of hours or a day could trigger a loss of exemption. The Regulations establish a “safe harbor” provision that would disregard isolated instances of pay reduction if the employer publishes a policy that prohibits improper pay practices and generally follows that policy.

Finally, the new Regulations continue the practice of permitting compensation in addition to salary, such as extra pay for special project work or long hours. In addition, the view that hourly pay with a minimum guaranteed number of hours as consistent with exempt status is provided in the Regulations.  This permits employers to build some flexibility into the scheduling of exempt workers without consistently paying for more or less hours of work than is actually performed.  The fluctuation should not, however, be significant from week to week.


As noted above, many employer’s rights may only be exercised if a written employment policy on that subject has been published and promulgated to all employees. Further, job descriptions that describe the actual duties of a position are essential in the event of a Department of Labor audit.  A review of the current classification of employees is recommended, especially in the case of employers in the fields of technology, management services, trade and learned associations and firms engaged in the provision of professional services. 

The combination of accurate job descriptions, correct classification of employees and a clear Employee Handbook statement of policies regarding compensation is essential to an employer who wishes to minimize risks that can include substantial back pay awards.

*Mr. Krill is a member of the Labor and Employment Team of Carr Maloney, P.C. headed by Thomas L. McCally in Washington, D.C. who advises businesses, professional organizations, health care institutions and computer science employers regarding laws impacting employment practices.  They can be reached at 202-310-5500.     

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