The Biden administration recently finalized a new overtime pay rule that will take effect this summer. While some observers are concerned it will be counterproductive, the U.S. Department of Labor hopes its steps to raise the salary thresholds for exemption from overtime obligations will benefit millions of workers. 

“This rule will restore the promise to workers that if you work more than 40 hours in a week, you should be paid more for that time,” said Acting Labor Secretary Julie Su. “Too often, lower-paid salaried workers are doing the same job as their hourly counterparts but are spending more time away from their families for no additional pay.” 

“That is unacceptable,” she declared.  

Employees are typically owed time-and-half pay for working hours in excess of 40 hours in a week. However, executive, administrative, and professional (EAP) employees may be exempt if they perform specifically identified duties, are paid a salary rather than an hourly wage, and have a salary that meets a certain threshold amount. 

The Biden administration plans to boost the minimum exempted EAP salary to $43,888 on July 1 of this year. It will then increase that minimum again to $58,656 effective January 1, 2025–a roughly 65 percent increase from the $35,568 level established by the Trump administration in 2019. In addition, the salary exemption for highly compensated employees (HCE) who perform at least one EAP duty will rise to $132,964 in July and $151,164 in the new year. These new levels would then be set for automatic updates every three years beginning in July 2027. 

While the administration believes these changes will provide “clear, predictable guidance” for organizations and will increase “economic security” for workers, other notable voices disagree. House Education and the Workforce Committee Chairwoman Virginia Foxx (R-N.C.), for example, is calling it a “bad deal” for both. 

“The reality is employers—including nonprofits and colleges—are staring down the barrel of billions in annual costs to comply with the rule,” said Foxx in a statement responding to the new regulation. “At the same time, many salaried workers will be forced into hourly positions—undermining their financial security and putting benefits and workplace flexibility at risk.” 

Foxx and other Members of Congress will have a chance to express thoughts directly to Acting Labor Secretary Su at a committee hearing on May 1. In addition, reports indicate this new rule could face legal challenges, particularly after the defeat of a similar Obama administration overtime regulation in court.  

Nevertheless, with the new rule slated to come into effect in a couple months, employers will need to decide whether to raise salaries of affected employees or to pay overtime to them as newly non-exempt employees when they work more than 40 hours in a week. Of note, as ECFA highlighted in its most recent Church & Nonprofit Tax Guide, ministerial employees are likely exempt from coverage by these increased overtime thresholds pursuant to the superseding ministerial exception under the U.S. Constitution’s First Amendment. 

ECFA will continue to monitor this matter on Capitol Hill and in the courts.

For a comprehensive breakdown of this new overtime rule, watch our webinar "A New Overtime Rule – What You Need To Know."