The overtime rule from the Department of Labor expands eligibility for overtime pay to even more US employees. For employers, this means potential increases in labor costs and additional considerations regarding policy and HR practices.
In this blog post, explore the key highlights of the rule and the actions you can take to maintain compliance.
What is the Updated Overtime Exemption Rule?
Earlier this year, the Department of Labor raised the minimum salary threshold for exemption from Fair Labor Standards Act (FLSA) overtime requirements. Employees below the new threshold must receive a salary increase or be reclassified to non-exempt status and paid overtime.
The new rule, also called the “white collar rule,” is scheduled to become effective July 1, 2024. It mandates a series of automatic salary threshold increases as follows:
- July 1, 2024: The minimum salary threshold increases from $684 per week ($35,568 per year) to $844 per week ($43,888 per year).
- January 1, 2025: The minimum salary threshold will increase again to $1,128 per week ($58,656 per year).
- July 1, 2027, and every three years after that: The salary threshold will increase based on national wage data calculations.
The new overtime rule also increases the minimum salary threshold for “highly compensated employees.” Following a similar phased approach, increases will occur as follows:
- July 1, 2024: The annual salary threshold will increase from $107,432 to $132,964 per year.
- January 1, 2025: The salary threshold will increase to $151,164 per year.
- Every three years, the minimum salary threshold will be updated.
What the New Overtime Rule Means for Your Business
The minimum salary exemption is only one piece of the puzzle when determining which employees will be exempt from overtime based on the new rule. You’ll also need to correctly classify each employee’s position and ensure timely communication with employees affected by the new rule. To get started, take the following actions:
1: Designate all employees as exempt or non-exempt
To determine which employees are exempt or non-exempt from the new overtime requirements, it’s essential to audit each job description and determine if it meets any of the overtime exemptions for executive, administrative, professional, computer, and outside sales employees. Employees can only be considered exempt from overtime requirements if they:
- Are compensated on a salary basis (vs. paid hourly)
- Earn above the minimum salary threshold
- Perform exempt job duties, such as making policy decisions, hiring employees, and determining staffing levels
The process of auditing each position can be complex, as your existing job descriptions may be vague and some employees may not have job descriptions. As a result, you’ll need trusted HR support to help you complete the audit in a thorough and efficient fashion. The HR team can also review other classifications, including 1099 (independent contractors) vs. W-2 (employees).
2: Determine the adjustments you will make to comply with the new rule
Once you have a clear picture of your exempt and non-exempt employees, you’ll need to decide which employees require a salary increase and which must be reclassified and made eligible for overtime. Making this determination can be challenging, especially since any change you make will potentially impact several of your existing talent management practices. Some of the areas to consider include:
- Payroll: Any salary and FLSA status changes must align with your payroll processes.
- Overtime policies and budget: Reclassifying employees to non-exempt could increase your overtime expense and necessitate changing your overtime request policies.
- Compensation structure: Making significant changes to employee salaries may require an adjustment of employee salary bands. You may also decide to adjust bonus eligibility to offset employee salary increases and additional overtime pay.
3: Communicate with affected employees
Once you have determined your plan, you’ll need to communicate changes to employees receiving a salary increase or being reclassified. Effective communication can help clear up any misunderstandings and bring transparency to the actions you’re taking to maintain compliance.
You’ll also need to notify the managers of affected employees. They need to be aware of changes so they can assist employees and involve HR where appropriate. HR can also draft employee notifications, manage any complaints that arise, and act as an ongoing resource for employees and managers.
4: Consider the employee relations implications
Becoming compliant with the new overtime rule is also an exercise in change management. Some employees may resist changes in their FLSA classification or pay, potentially affecting morale and engagement. For example, employees who don’t meet exemption requirements and are reclassified to non-exempt may resent
being paid hourly and recording their hours each pay period. Managers being reclassified to non-exempt may also see the change as a demotion that puts them on par with their direct reports.
Responding to these concerns with empathy and transparency will be critical, especially since employees will likely have questions and need support before and after changes occur. NorthstarPMO HR professionals have the expertise to help you navigate these conversations. As your dedicated HR support team, they’ll be on hand to ensure employees understand your commitment to fair pay within the context of the latest labor law changes.
5: Stay on top of legislative updates
The future of the new overtime rule is not entirely clear. In fact, a similar rule was planned in 2016 but was struck down in court. Several employers and business associations have filed legal challenges to the current rule, and the January 2025 threshold increase could be affected if a new administration wins the upcoming general election.
To stay aware of labor law changes and their impact on your business, work with experts who can advise you. NorthstarPMO HR professionals keep abreast of the latest developments in all areas of US employment law and frequently leverage continuous education opportunities, such as conferences and Society for Human Resource Management (SHRM) resources.
NorthstarPMO is Here to Help You Navigate FLSA Overtime Requirements
When you’re busy growing your business, you don’t have time for a deep dive into complex employment legislation. However, with NorthstarPMO on your side, you can comply with the new overtime rule and all other labor laws. Our fractional HR services cover the full spectrum of HR and people operations support, including:
- HR strategic advice for routine and urgent talent management issues
- FLSA classification audits
- Updating and maintaining job descriptions
- Compensation structure development, analysis, and ongoing support
- Employee communications and conflict resolution
- Payroll management
- Benefits administration, and much more!
When you need comprehensive HR compliance support, NorthstarPMO is here! Even if you haven’t yet taken action to comply with the new overtime rule, it’s not too late for us to roll up our sleeves and assist you. Schedule a discovery call to learn more.