The U.S. Department of Labor’s (DOL’s) has implemented a new overtime rule that will significantly increase the salary threshold for white-collar exemptions to overtime requirements in two phases, including the following:
- Effective July 1, 2024, the Fair Labor Standards Act's (FLSA's) annual salary-level threshold for white-collar exemptions to overtime requirements will increase from $35,568 to $43,888.
- Effective January 1, 2025, the annual salary threshold will rise to $58,656 - nearly a 65% increase from the current level.
The Fair Labor Standards Act (FLSA) mandates overtime pay for the majority of employees, but it also provides exceptions for certain job categories. Those employees who qualify for overtime pay are labeled as “nonexempt,” while those who do not qualify are termed “exempt.” The most frequently seen exemptions from overtime, commonly known as the “white-collar exemptions,” encompass roles such as executive, administrative, professional, outside sales, and specific computer-related jobs.
Who Is Affected
To qualify for white-collar exemptions, employees must be paid a salary of at least the threshold amount and meet certain duties tests. If they are paid less than the threshold or do not meet the tests, they must be paid 1.5 times their regular hourly rate for hours worked in excess of a 40-hour work week. FSLA’s white-collar executive, administrative, and professional exemptions are not eligible for overtime pay.
The new rule is expected to expand overtime protections to lower-paid salaried workers, which could provide meaningful financial relief for some employees. However, the changes may also burden small businesses, potentially forcing them to cut jobs or raise prices.
Proceed With Caution
Employers will need to carefully review their exempt employees’ salaries and decide whether to raise them to maintain the exemption or to reclassify them as non-exempt and pay overtime. This process should be approached cautiously, as the rule is likely to face legal challenges.
Employers will need to:
- Budget for increases in salary and overtime expenses.
- Plan for communication or reclassification decisions. This will include training reclassified employees on timekeeping requirements and rules against off-the-clock work. Employers must also manage concerns that employees might raise if they are upset about losing their salaried status.
- Considering the 2025 salary-level thresholds and the interim, employers must determine whether to accomplish this in two steps or jump straight to the 2025 threshold.
- Be mindful of state, local, and wage and hour laws that may impose additional requirements for exempt status beyond federal requirements under the FLSA.
How To Navigate This Rule
GMS can help your company stay compliant with the DOL’s new overtime rule and manage the associated challenges. Our team of HR experts can assist with analyzing your workforce, determining the appropriate classification for each employee, and implementing any necessary salary adjustments or reclassifications.
We can also provide guidance on navigating the legal uncertainties, training programs for managers and employees on the new requirements and ensuring your payroll and timekeeping systems are updated to comply. By partnering with GMS, you can confidently navigate these complex regulatory changes and avoid penalties or disruptions to your business. Contact us today!