The latest overtime rule, finalized by the Department of Labor (DOL) with one noteworthy exception introduces significant changes to the Fair Labor Standards Act (FLSA) regarding overtime pay exemptions for executive, administrative, and professional employees.
Key Changes to Overtime Rules
Salary Threshold Increase: As of last week (July 1st), the salary threshold for overtime exemption has increased from $684 per week ($35,568 per year) to $844 per week ($43,888 per year). Beginning at the top of next year, (January 1, 2025), the threshold will further increase to $1,128 per week ($58,656 per year).
Highly Compensated Employees: Also effective last week, the total annual compensation requirement for highly compensated employees has increased from $107,432 to $132,964. Beginning at the top of next year (January 1, 2025), this threshold will increase to $151,164.
Automatic Updates: Starting July 1, 2027, the salary thresholds will be updated every three years based on current wage data.
Implications for Businesses
- Employee Reclassification: Many employees who were previously exempt may now be eligible for overtime pay.
- Increased Payroll Costs: Businesses will need to either raise salaries to maintain exemptions or start paying overtime to previously exempt employees.
- Administrative Adjustments: Employers will need to regularly review and adjust compensation structures to comply with the automatic updates every three years.
Steps for Compliance
- Review Employee Classifications: Evaluate which employees will be affected by the new thresholds and determine if reclassification is necessary.
- Adjust Payroll Systems: Ensure that payroll systems can handle the changes, including tracking hours for employees who will now be eligible for overtime.
- Communicate Changes: Inform affected employees about the changes in their classification and how it will impact their pay.
- Training: Provide training to managers and HR personnel on the new regulations and how to implement them.
- Engage Partners: Engage the experts to ensure full compliance with both federal and state laws.
The Bottom Line
By following these steps, businesses can smoothly transition to the new overtime rules and avoid potential penalties for non-compliance. Schedule a free consultation to learn how we can streamline your payrolling compliance processes–ensuring peace of mind and operational efficiency.
