New Rules Impacting Overtime Pay

The U.S. Department of Labor (DOL) announced a significant change to the Fair Labor Standards Act (FLSA) on April 23, 2024, affecting the salary thresholds for exempt employees. The changes will commence on July 1, 2024, with further increases set for January 1, 2025, and periodic adjustments planned for subsequent years. This new rule is expected to affect approximately 4 million workers across the country.

Overview of the Updated Salary Thresholds

Previously, the FLSA set the salary thresholds at $684 per week ($35,568 annually) for executive, administrative, and professional employee exemptions, and $107,432 annually for the highly compensated employee exemption. The new rule increases these amounts significantly:

• As of July 1, 2024: $844 per week ($43,888 annually) for executive, administrative, and professional employees, and $132,964 annually for highly compensated employees.

• As of January 1, 2025: $1,128 per week ($58,656 annually) for the former group, and $151,164 annually for the latter.

• Starting July 1, 2027, and every three years thereafter: Automatic updates based on earnings data will further adjust these thresholds.

Implications and Employer Action Steps

With the rule set to take effect soon, employers must prepare swiftly to meet these new standards. Key actions include:

1. Identifying Affected Employees: Determine which current exempt employees fall below the new salary thresholds.

2. Deciding on Adjustments: Employers will need to decide whether to increase salaries to maintain exemptions or reclassify employees as non-exempt and thus overtime eligible.

3. Considering Broader Impacts: Adjustments may necessitate changes in pay structures throughout the organization to maintain internal equity and competitiveness.

4. Planning for Implementation: Detailed planning is required to phase in these changes smoothly, including modifying payroll systems and communicating changes to affected employees.

Legal Considerations and Compliance

This update comes as the Supreme Court considers cases that might affect the deference given to administrative agencies like the DOL, which could impact the enforcement of these rules. However, employers should proceed with compliance efforts while keeping abreast of any legal developments.

Considering these changes, it's advisable for businesses to conduct a thorough review of all their exemption classifications and compensation strategies to ensure they remain compliant not only with federal but also any applicable state-specific regulations.

This rule represents a significant shift in how businesses will manage payroll and labor costs, emphasizing the need for proactive planning and adaptation. Employers are encouraged to act swiftly to align their practices with these new legal requirements. If you believe this impacts you we recommend you contact your attorney for guidance.