In April 2024, the Biden-Harris administration issued a new final rule through the Department of Labor regarding the minimum threshold for salaried employees to qualify for overtime pay. The federal exempt wage minimum is tentatively scheduled to increase on July 1, 2024, and again on January 1, 2025.
The overtime rule changes for 2024 are expected to impact as many as 30 million American workers. Employers must comply with these changes to avoid penalties and ensure proper employee classification. Here's what you need to know about the changes in the new overtime rule:
DOL Salary Threshold Update
Under current Department of Labor (DOL) rules, professional salaried employees making more than $35,568 per year are exempt from overtime pay. While this is the federal minimum, some states have higher minimum overtime-exempt salary thresholds.
Starting on July 1, 2024, the minimum threshold will increase to a salary of $43,888 per year, or $844 per week. The threshold increases again on January 1, 2025, to a minimum of $58,656 per year, or $1,128 per week. The federal exempt wage minimums will increase every three years going forward, starting on July 1, 2027. The rule change will also impact highly compensated individuals.
As of this writing, federal lawsuits against the rule change are pending, which could delay or even nullify the implementation of the DOL's final rule. However, employers should proceed as if the rule changes will go into effect on schedule to ensure that they avoid fines or penalties for non-compliance.
Impact on Employers
Since most employers won't be giving their salaried employees a 40 percent pay increase over a six-month period, it means that many workers currently classified as exempt will need to be reclassified as non-exempt.
Employers should start planning for this change now. Businesses should also expect to see an increase in payroll expenses because many of their currently exempt employees will be eligible for time-and-a-half when they work more than 40 hours per week.
Best Practices for Exempt Employee Salary Requirements
Business owners must prioritize reclassifying exempt employees as non-exempt based on the new thresholds. Once this is done, employers should closely examine how they manage employee hours. Staffing adjustments may be required to avoid paying too much overtime to salaried employees who are now non-exempt. Time and labor management services can be very helpful in this task.
Companies will have to measure whether it is more cost-effective to hire more non-exempt staff to maintain business operations or pay the added overtime. Employees can be alerted to the changes and informed that instead of working more than 40 hours a week, they'll have more personal time to spend with their families. For many workers, this is an acceptable trade-off for not receiving overtime pay.
Continue to monitor the news regarding the lawsuits against the DOL's final rule. Predicting the outcome is impossible, but if the plaintiffs prevail, the rule change might not go into effect. As mentioned, employers should assume that the rule change will be upheld and proceed accordingly.
Contact Workforce PayHub to Guide You Through
The Department of Labor's update to federal exempt wage minimums will have a major impact on companies with salaried employees. Employers must reclassify exempt employees as non-exempt if they do not meet the new salary minimums, and begin paying overtime to those non-exempt employees who work more than 40 hours per week.
To comply with the latest labor regulations, connect with Workforce PayHub for expert guidance and services tailored to your business needs. Reach out to us today.
