FLSA - Overtime Rule Changes Effective July 1, 2024

New minimum salary levels announced by the Department of Labor on April 23, 2024, expand overtime protections for millions of workers—including some ministry workers—currently paid a salary. The rule increases the salary thresholds required to exempt a salaried bona fide executive, administrative or professional employee from federal overtime pay requirements.

Effective July 1, 2024, the salary threshold will increase to an annual salary of $43,888. A second phase increase of $58,656 will be effective on January 1, 2025. 1

The July 1 increase updates the present annual salary threshold of $35,568 used in the 2019 overtime rule update.
On January 1, 2025, the rule’s new methodology takes effect, setting the standard salary level at the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region. This will result in the additional increase on this date of a salary level of $1,128 per week or $58,656 per year.
For highly compensated employees to remain exempt, the July 1 increase raises their salary from $107,432 to $132,964. On January 1, 2025, the new methodology will raise the salary level for this group to $151,164 annually.
Starting July 1, 2027, salary thresholds will update every three years, by applying up-to-date wage data to determine new salary levels.

Review Ministry Employees

Ministries should audit their employee roster to determine if any could be eligible for overtime under the new ruling:

Review your employee classifications. Ministries should determine whether any of their employees fall within the governance of the FLSA and, if so, must classify their employees as non-exempt and exempt. Now’s a good time to ensure all your employees are properly classified.
Review pay for your exempt employees. Know which employees are performing exempt job duties. If you pay the exempt employee less than $43,888 per year, your ministry will need to:
- Raise the exempt employee’s salary to meet the minimum salary level, or
- Reclassify the employee as non-exempt. This will subject the employee’s pay to minimum hourly wage requirements and overtime.
Communicate new classification terms to affected employees. Some states require advanced notice of wage changes, so check on your local requirements.

Who’s an Exempt Employee?

An exempt employee is someone who, due to the nature of their work and level of responsibility, is not subject to the minimum wage and overtime provisions of the FLSA. Exempt employees are compensated on a salary basis, reflecting the value of their work rather than the quantity of hours worked.

Who's a Non-exempt Employee?

Non-exempt employees must be paid minimum wage and compensated on the number of hours worked, including being paid overtime if they work more than 40 hours in a workweek. These employees typically engage in tasks that do not fall into the executive, professional, or administrative categories

Exempt vs. Non-Exempt: Qualifying Tests

An exempt employee must meet the following three tests:

Salary basis test: This test requires that an exempt employee be paid a salary, and it limits the types of deductions that can be made to the employee’s salary.*
Salary level test: This test requires that an exempt employee be paid at least the FLSA minimum salary amount. As of July 1, 2024, this amount changes to $43,888 a year or $844 a week. Beginning January 1, 2025, the annual salary threshold increases to $58,656.
Primary duties test: This test requires that an exempt employee typically perform executive, administrative, professional, or creative professional job duties. It’s important to note that a job title, such as “office manager” is not a determining factor. The employee’s job duties must pass the primary duties test.

An employee can meet the primary duties test but not pass the salary basis test, or pass the salary basis test but not satisfy the primary job duties test. Employees that fail to meet all three of these tests generally must be considered non-exempt and must be paid at least minimum wage and overtime.

Paying a part-time worker a salary. While employers can pay a non-exempt employee a salary without violating the FLSA, this often results in confusion. Employers must vigilantly monitor hours worked and keep accurate records to ensure the non-exempt employee earns a minimum wage and applicable overtime. This article from MinistryWorks, Can a Part-Time Employee be Paid a Salary? helps explain the issues.

What if We Don’t Pay Enough?

If you currently have an employee performing exempt job duties, and the employee is being paid a salary of less than $43,888 per year, your ministry needs to do one of two things:

Raise the exempt employee’s salary to meet the current minimum salary level. As of July 1, 2024, that amount is $43,888 a year or $844 a week. Beginning January 1, 2025, the annual salary increases to $58,656.
Reclassify the employee as non-exempt. This will subject the employee’s pay to minimum hourly wage requirements and overtime.

Does the FLSA Apply to Ministries?

Most ministries are not considered “covered enterprises” because they do not operate a business that competes with commercial entities. However, ministries that have a coffee shop or space they rent out to non-members would likely be deemed a covered enterprise due to these commercial activities and would need to classify their employees as either non-exempt or exempt to comply with the FLSA.

While most ministries may not be considered “covered enterprises,” individual employees may still be covered and entitled to protections if such individual employees fall under the “individual coverage” category as defined by the FLSA.

Does the FLSA Apply to Ministry Employees?

Some ministry employees could be protected by the FLSA on an “individual coverage” basis even if the ministry as a whole may not be considered a “covered enterprise.” Generally, employees who are participating in “interstate commerce” regularly would satisfy the “individual coverage” analysis and be protected by the FLSA. Participating in interstate commerce may include, making phone calls, ordering items online, sending mail, or traveling across state lines for work. Ministry employers that have employees who meet the “individual coverage” test will need to properly classify their employees as non-exempt or exempt.

The “enterprise” test and the “individual employee” test are used to determine whether employers or employees are subject to the FLSA:

Enterprise test: Does the Fair Labor Standards Act Apply to our Ministry?
Individual employee test: Non-Profit Organizations and the Fair Labor Standards Act (FLSA)

What about the Ministerial Exception?

Several courts have created a ministerial exception that exempts clergy from employment-related laws, while the Department of Labor (DOL) has mentioned the exception applying federal wage and hour laws in some instances. Generally, the exception applies to pastors, ministers, other ordained employees, or those who function in a similar religious capacity. Courts have used different criteria to evaluate who should be considered a minister for purposes of the exception. For non-clergy employees, ministries should follow FLSA rules and classify them as either exempt or non-exempt.

Consult an Expert

Ministry leaders are strongly encouraged to consult a locally licensed attorney to confirm they are in compliance with the FLSA and any applicable state and local laws. Several state and local jurisdictions have established their own wage and hour laws, including their own salary and duties tests to determine if an employee is exempt from overtime according regulations. As a general rule, if the state law is more protective (meaning it demands a higher salary or has more stringent duties tests), then employers should comply with the state law.

*Note on the Salary Basis Test: Deductions made from wages for such items as cash or merchandise shortages, employer-required uniforms, and tools of the trade, are not legal to the extent that they reduce the wages of employees below the minimum rate required by the FLSA or reduce the amount of overtime pay due under the FLSA. 2

Ministries should also pay attention to a proposed rule that attempts to clarify which perks can and cannot be included in an employee’s “regular rate of pay.” Under current rules, employers are discouraged from offering more perks to their employees as it may be unclear whether those perks must be included in the calculation of an employees’ regular rate of pay. The proposed rule looks to confirm that employers may exclude perks such as wellness programs, payment for unused benefit time, and bonuses.

1"Frequently Asked Questions - Final Rule: Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees." U.S. Department of Labor, Wage and Hour Division, https://www.dol.gov/agencies/whd/overtime/rulemaking/faqs#flsa29. Accessed 24 April 2024.
2 “Digital Reference Guide to the Fair Labor Standards Act.” U.S. Department of Labor, Wage and Hour Division, https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/Digital_Reference_Guide_FLSA.pdf. Accessed 24 April 2024.

Posted April 2024. Updated June 2024

The information provided in this article is intended to be helpful, but it does not constitute legal advice and is not a substitute for the advice from a licensed attorney in your area. We strongly encourage you to regularly consult with a local attorney as part of your risk management program.