On April 23, 2024, the Biden-Harris administration announced a new final rule from the Department of Labor that will likely have a major impact on many companies. The rule revises the Fair Labor Standards Act (FLSA) regarding overtime eligibility thresholds for executive, administrative, or professional (EAP) employees.

Many EAP employees will become eligible for overtime pay once the rule goes into effect on July 1, 2024. Although the rule is expected to face significant legal challenges, businesses must now prepare to ensure compliance if it goes into effect as scheduled.

Overview of the New Overtime Eligibility Thresholds

The FLSA requires that employees working over 40 hours per week be entitled to overtime pay. However, employees who fall within the EAP categories are exempt and are not owed overtime. These employees must receive a fixed and predetermined salary, currently $35,568 per year ($684 per week), and perform executive, administrative, or professional duties.

New Thresholds:

  • July 1, 2024: Increase to $43,888 per year ($844 per week).
  • January 1, 2025: Increase to $58,656 per year ($1,128 per week).

This represents a 40% increase in the salary thresholds for overtime in less than a year. Additionally, starting on July 1, 2027, the salary thresholds will automatically increase every three years.

Impact on Businesses

HR and payroll staff at many companies will need to reassess how employees are classified. Employees paid below the new thresholds must be reclassified as non-exempt and will be eligible for overtime pay. Businesses currently relying on lower-paid salaried workers may face significant overtime costs.

Steps for Ensuring Compliance

To ensure compliance with the new federal overtime regulations, businesses should:

  1. Review and Adjust Employee Classifications: Ensure employees earning below $43,888 on July 1, 2024, or $58,656 on January 1, 2025, are reclassified as non-exempt.
  2. Update Payroll Systems: Reflect new thresholds in payroll systems and ensure third-party or automated systems are updated accordingly.
  3. Train HR and Payroll Staff: Provide training on the new regulations to ensure staff are well-informed.
  4. Conduct Regular Payroll Audits: Ensure ongoing compliance with the new regulations, considering the two changes happening within six months.

Benefits of the New Rule

The new overtime pay rules for 2024 could result in some benefits for salaried EAP employees. If they work overtime, the extra pay for those hours will increase employee satisfaction and retention. It will also offer enhanced pay equity for lower-paid salaried workers and predictable guidelines for employers. Starting in 2027, employers will know that the thresholds will automatically increase every three years.

Challenges and Considerations

One of the challenges of the new rule is something that often occurs when a new major federal regulation is imposed on the marketplace. Some employees’ positions will simply be eliminated because it will cut into the “bottom line” for many companies. An alternative to this could be that companies will adjust work hours or redistribute workloads to stay profitable.

One of the initial challenges for employers will be the administrative and financial burden of adjusting to the new rule. Employees who don’t meet the new salary thresholds will need to be reclassified. They’ll also be entitled to more compensation if they work more than 40 hours a week, which will be a new expense for companies. Navigating complex cases might also require businesses to retain legal counsel to ensure compliance.

New Overtime Rules for 2024

Businesses must start preparing by updating their payroll systems, anticipating increased labor costs, properly reclassifying formerly exempt employees as non-exempt, and training their HR and payroll staffers on the new final rule.

Schedule a consultation with our Affiliated HR and Payroll Services compliance experts to review your payroll practices and avoid costly penalties.

 

Stephanie Baxmann

Stephanie Baxmann

Client Service Representative at Affiliated HR & Payroll Services