New DOL Rule Expands Overtime Pay: What Employers Need to Know

In April, the Department of Labor (DOL) announced that it was expanding overtime pay eligibility to cover more U.S. workers. The department’s new rule raises the pay threshold beyond which specified salaried employees must be compensated for overtime. In this blog post, we’ll examine this new rule, its potential impact on employers who utilize salaried staff, and how to ensure you remain in compliance with the evolving law.

What does the new rule do?

The new DOL rule seeks to ensure fair pay by updating the amounts workers must be paid to be classified as exempt from the overtime requirements of the Fair Labor Standards Act (FLSA). The FLSA requires that non-exempt employees who exceed 40 hours of work during a workweek be paid at least 1.5 times their regular rate of pay for those additional hours. Many workers, however, are exempt from these provisions. These include certain executive, administrative, and professional (EAP) employees who meet specified salary guidelines.

The FLSA grants authority to the Secretary of Labor to define and determine the limits of these kinds of exemptions. Under current regulations, EAP employees as well as outside sales and computer professionals that earn up to $684 per week (or a full-time salary of $35,568 per year) are exempt from overtime pay. Particularly for workers at the lower end of this spectrum, long hours can severely depress hourly earnings.

To make overtime pay available to more lower wage white-collar employees, the DOL has announced an adjustment to the standard salary level required to classify workers as exempt. The department determined that the appropriate threshold is equivalent to the 35^th percentile of weekly earnings for full-time salaried workers in the lowest wage Census region, which is currently in the South at $1,128 per week. This new standard will be implemented in two stages:

• Effective July 1, 2024, the standard salary level will be adjusted to $844 per week ($43,888 per year for full-time, year-round workers). This represents an adjustment for inflation to the previous rule.
• Effective January 1, 2025, the threshold salary will increase to $1,128 per week ($58,656 per year) and be updated every three years thereafter based on the new calculation criteria and current wage data.

What do employers need to do?

While court challenges could result in the delay or elimination of these new standards, employers should begin planning now for implementation of this new rule. The Society for Human Resource Management recommends a cautious approach to rolling out salary increases and employee reclassifications, however, in light of this legal uncertainty.

Identify Affected Employees & Determine Rollout Schedule

The first step is to determine which employees will be affected at each of the two stages outlined above. Identify all salaried employees who are currently classified as exempt and whose annual pay falls between $35,568 and $58,656. Then, businesses will need to assess their needs and decide whether they will reclassify those employees as non-exempt or increase their salaries to keep them exempt from overtime requirements. Next, employers should assess whether to roll out these changes all at once or in two stages. While they could wait until January 1 to meet the higher threshold, businesses could find that it’s more efficient and practical to make salary and/or classification updates once rather than twice.

Revisit Current Classifications

Many workers fall into grey areas, in which they are neither clearly exempt from nor clearly covered by overtime requirements. If you’re unsure whether certain salaried workers’ duties qualify them as EAP employees, for example, the rule change could provide an opportunity to make a course correction. This is a good time to review worker classifications and ensure they’re appropriate.

Plan for New Procedures & Employee Training

If currently exempt employees will be reclassified as non-exempt from overtime pay, then the employer should plan to implement timekeeping procedures for newly non-exempt workers and conduct employee trainings on how to maintain FSLA overtime compliance. Training should cover how employees should track their work time as well as inform them about prohibitions against off-the-clock work. These trainings can also provide an opportunity for workers to share concerns and ask any questions they may have about these changes and how their positions will be impacted.

How can employers ensure compliance with changing employment laws?

Particularly for small and mid-sized businesses, the administrative burden of maintaining compliance with ever-changing employment laws can be significant. Outsourced HR experts can help businesses mitigate the risk of FLSA noncompliance, which can result in lawsuits and even criminal penalties. By relying on trusted outsourced back-office compliance, HR, and legal solutions, businesses can mitigate risk and increase efficiency, allowing their internal staff to remain focused on day-to-day operations.

ESSG has been supporting businesses with trustworthy outsourced back-office expertise since 2005. Learn more about our suite of solutions, or browse our blog for more tips on maintaining legal compliance and mitigating risk in your business.