On April 23, 2024, the U.S. Department of Labor (DOL) announced its new overtime rule, which will update Fair Labor Standards Act (FLSA) requirements. The minimum salary threshold will increase first on July 1, 2024, and again on January 1, 2025.
What are the increases, and what do they mean for both employees and employers? The final rule will impact about a million salaried executive, administrative, professional, outside sales, and computer employees come July 1 and another three million as of next January. This gives employers a lot of planning and budgeting to do in the meantime. Plus, the change includes a bump in the total annual threshold for highly compensated employees.
Find everything you need to know about the DOL’s new overtime rule and what you should consider in the coming months.
What are the New Overtime Rule Salary Thresholds?
Currently, the minimum salary for executive, administrative, and professional (EAP) employees to be exempt from FLSA minimum wage and overtime pay protections is $684 per week or $35,568 per year. This will increase to:
- $844 per week (equivalent to $43,888 per year) as of July 1
- $1,128 per week (equivalent to $58,656 per year) as of January 1, 2025
The new overtime rule will also increase the salary threshold for highly compensated employees (i.e., those not entitled to overtime pay under the FLSA if they meet certain requirements) from $107,432 per year to $132,964 per year on July 1 and then to $151,164 on January 1, 2025.
These changes will impact not only typical overtime but also weighted overtime calculations. If you have employees who fill multiple roles and have multiple pay rates, now is the time to start planning and adjusting.
When is an Employee Exempt vs. Nonexempt?
Need a refresher on exempt vs. nonexempt employees? Nonexempt employees are paid hourly or do not meet the minimum salary thresholds listed here. They must be paid for all hours worked and any overtime (i.e., hours worked beyond 40 hours each week). Overtime must be paid at 1.5x their hourly rate.
Exempt employees are not entitled to overtime and/or minimum wage provisions set by the FLSA. Exempt employees usually hold executive, administrative, or professional roles. These employees must qualify for the EAP exemption, which is met when:
- The employee is paid on a salaried basis
- The salary is not less than the minimum salary threshold amounts listed above
- The employee’s primary duties are executive, administrative, and/or professional
While the DOL states that it’s on the employer to determine whether the EAP exemption applies, you can generally use these guidelines:
- Executive exemption: Their primary duties involve managing two or more full-time employees or their equivalent. They have the authority to hire or fire employees, and their recommendations regarding hiring, firing, advancement, or promotion hold particular weight (e.g., managers and supervisors).
- Administrative exemption: They perform office or non-manual work directly related to the management or general business operations and must exercise discretion and independent judgment (e.g., HR personnel or financial analysts).
- Professional exemption: Their primary duties require advanced knowledge in a particular field, prolonged, specialized education and/or invention and originality, and the consistent exercise of discretion and judgment.
What Other Changes Come with the New Overtime Rule?
Between 1938 and 1975, the DOL increased minimum salary thresholds every five to nine years. These periods became longer after 1975, meaning the salary threshold became less effective at helping qualify exempt EAP employees.
As part of the DOL’s new overtime rule, they state the eligibility thresholds will be updated every three years starting July 1, 2027. The department says this ensures the minimums will “keep pace with changes in worker salaries, ensuring that employers can adapt more easily because they’ll know when salary updates will happen and how they’ll be calculated.”
How Should Employers Handle the New OT Rule?
You’ll need to remain compliant as the new overtime rule goes into effect. However, as a small business owner, it may not be wise or financially feasible to give all affected exempt employees a raise to ensure they still qualify as exempt under the FLSA. And remember, it’s not only about the earning level—the worker also has to be paid on a salaried basis and perform exempt job duties, as explained above.
So, as you prepare for these increases to take effect and before you jump into any decisions:
- Evaluate current employee classification. Determine if they meet the updated salary threshold for overtime pay exemption. Check each team member’s salary level and primary job duties to ensure compliance with the new regulations.
- Identify impacted employees. This means those who currently fall below the new salary threshold and are classified as exempt but may now be eligible for overtime and need to be reclassified from exempt to nonexempt status.
- Assess the potential cost implications on your organization. That means payroll expenses, budgetary considerations, and overall labor costs. Do you need to make adjustments to accommodate overtime pay?
- Consider compensation adjustments. Does it make the most sense to increase salaries to maintain exempt status? Can you adjust work schedules to minimize overtime hours or implement alternative compensation structures? Note that having more nonexempt employees could complicate your administrative responsibilities and software needs regarding employee timekeeping.
- Communicate changes transparently. If employee classification or compensation changes will occur, communicate them clearly and as soon as possible. Explain the reasons for the changes, how they’ll be implemented, and how they may impact affected employees.
- Review overtime policies and procedures. Update them to reflect any changes in employee classification or compensation resulting from the new overtime rule, and ensure they are clearly defined and consistently applied. Remember to train employees (especially newly nonexempt people) in areas like time tracking, rest and meal breaks, and overtime approval.
- Train managers and supervisors. Ensure those in leadership roles understand the updated regulations, employee classification criteria, and overtime policies. This will help maintain compliance across the organization, maintain morale, and prevent dissatisfaction and turnover.
Know Your Overtime Regulations
If you have two or more employees and your business makes yearly sales of at least $500,000, it is covered by the FLSA, meaning you must provide overtime pay to nonexempt employees. Your state may also have specific overtime laws, even if you’re exempt from FLSA requirements.
Simply put, you should understand overtime pay rules and how they’ll affect your business and workers!
But we get it—these approaching increases are significant, so you may be wondering what the best strategy is for adjusting employee compensation and classification and communicating these changes with your team. If you want a partner to help you navigate this challenging matter in the coming months, contact BlueLion today at 603-818-4131 or info@bluelionllc.com to learn how we can help.
The information on this website, including its newsletters, is not, nor is it intended to be legal advice. You should contact an attorney or HR specialist for advice on your individual situation.
