Starting in July 2024, four million new workers will become entitled to overtime pay, thanks to the Department of Labor’s (DOL) new overtime rule.
What does this DOL overtime rule update mean for your small business? It may mean that you need to change your employees’ classification. Employees who were recently considered exempt may now be newly nonexempt.
So, what is the new overtime rule and salary threshold? Read on to find out.
2024 New overtime rule
The Fair Labor Standards Act (FLSA) is a federal law that establishes overtime pay eligibility, alongside minimum wage, recordkeeping requirements, and child labor laws.
Employers must follow the FLSA to determine whether employees are exempt from overtime. Overtime is time and a half pay for every hour worked over 40 in a workweek. The FLSA salary threshold is the minimum salary employers must pay employees for them to be exempt from overtime wages.
The Department of Labor administers and enforces the FLSA. As a result, the DOL determines the salary threshold.
On April 23, 2024, the DOL announced its new overtime rule, “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees.”
Beginning July 1, 2024, the new DOL rule increases the salary threshold, making millions of previously exempt employees nonexempt from overtime pay. The new overtime rule increases the FLSA salary threshold to $43,888 annually ($844 per week), up from $35,568 ($684 per week).
This new law changes what qualifies as an exempt employee. But, this threshold is only one of three requirements employees must meet for FLSA exemption.
Employees are only exempt from overtime pay requirements if they meet all three of the following:
- The employee receives a salary,
- The salary is not less than the FLSA salary threshold ($43,888 annually beginning July 1, 2024), AND
- The employee has executive, administrative, or professional job duties
The new overtime rule also changes the annual compensation requirement for highly compensated employees from $107,432 to $132,964 annually.
Future salary threshold increases
Beginning January 1, 2025, the FLSA salary threshold will increase to $58,656 annually ($1,128 per week).
The annual compensation requirement for highly compensated employees will also increase to $151,164 on January 1, 2025.
On July 1, 2027, the threshold will increase again, and there will be another increase every three years.
What the DOL final overtime rule means for your business
So, does the DOL new overtime rule affect your small business?
Nothing will change if you have nonexempt employees. You will still pay your nonexempt employees their regular wages and overtime pay for any overtime hours they work.
However, you may need to take action if you have exempt employees. And if you need to reclassify currently exempt employees, you must find ways to comply with the DOL new overtime rule.
Here’s what you can do to comply with the law.
1. Look at your exempt employees’ salaries
First, take a look at your records for each exempt employee. How much does your exempt employee earn per year? You don’t have to do anything if they earn at least $43,888.
If you have previously exempt employees who earn below $43,888, you have three options:
- Increase salaries
- Pay overtime wages
- Limit overtime hours
Increase salaries
One option is to increase employee salaries above the new FLSA salary threshold of $43,888.
You may consider giving nonexempt employees pay raises, too. That way, you can close any new wage gap in your business and avoid wage violations.
Pay overtime wages
You must begin paying your newly nonexempt employees overtime wages if they earn below $43,888 annually.
Again, overtime is time and one-half the employee’s regular rate of pay for time worked beyond 40 hours in a workweek. Multiply the employee’s regular rate of 1.5 to get their overtime rate. Then, multiply that overtime rate by the number of hours over 40 worked.
You might want to convert your employees’ salaries into an hourly rate to simplify overtime calculations. However, you can calculate overtime for salary employees if you continue paying salaries.
Limit overtime hours
Another option for dealing with the DOL overtime rule 2024 is to limit the number of overtime hours your newly nonexempt employees can work.
Be upfront with your employees when implementing an overtime ban or decrease in the workplace.
You cannot have employees work extra time for free. It is illegal to have your employees clock out and continue working.
Talking to newly nonexempt employees
Talk to your newly nonexempt employees. Here are the basic things you should talk to employees about to encourage a smooth transition.
1. Clarify that the changes are mandatory
Some employees may not like the change in status from exempt to nonexempt.
When you talk to your employees about the changes, explain that you are required by law to follow the new FLSA salary threshold.
2. Promote the changes as positive
Again, some employees may be disgruntled about becoming nonexempt. Many employees view exemption from overtime as an elite or professional status. Newly nonexempt employees might think they are getting demoted.
Let employees know that exempt vs. nonexempt status is not a reflection of their importance.
Depending on your overtime policy, you can positively promote the changes. Let employees know they can earn extra income for any overtime hours worked.
3. Provide timekeeping training
This might be the first time your newly nonexempt employees need to track the time they work. Train your employees to use your timekeeping method (e.g., employee time clocks).
If you don’t have a timekeeping system, consider purchasing an online time and attendance solution for your business.
Let your employees know that they need to track all the time they work. In addition to regular tasks, your employees should track FLSA hours worked for things like taking a business call during lunch.
4. Explain flexibility changes
Exempt employees often enjoy more workplace flexibility than nonexempt employees. Tell your newly nonexempt employees how their new status affects their flexibility.
Often, exempt employees can create their work schedule around personal obligations. Newly nonexempt employees must accurately track the time they work or don’t work.
5. Talk about job changes
Depending on your overtime policy, some jobs might change when the employee becomes nonexempt. You might have to reduce some employees’ tasks to limit overtime. If you change or redistribute some tasks, tell the affected employees.
Clearly explain your overtime policy. Let employees know if they can work overtime to finish their tasks. If you will let employees work overtime, tell them if there is a procedure for asking to work additional hours, or if there is a cap on the amount of overtime allowed.
FLSA overtime rule update: Fast facts
Want the quick scoop on the DOL new overtime rule? We’ve got you covered:
- DOL new overtime rules 2024 begin on July 1, 2024
- Beginning July 1, 2024, the salary threshold increases from $35,568 per year ($684 per week) to $43,888 per year ($844 per week)
- The annual compensation requirement for highly compensated employees increases from $107,432 per year to $132,964 on July 1, 2024
- Beginning January 1, 2025, the salary threshold increases from $43,888 ($844 per week) to $58,656 ($1,128 per week)
- The annual compensation requirement for highly compensated employees increases from $132,964 to $151,164 on January 1, 2025
Do you need an easy way to keep track of employee time? Try Patriot’s time and attendance software. Employees can easily clock in and out, and the hours are automatically sent to our payroll software. Try both for free!
This is not intended as legal advice; for more information, please click here.
