On April 6, 2024, the Department of Labor (DOL) released a final ruling under the Fair Labor Standards Act (FLSA) about overtime regulations for exempt workers. While the regulation still has to undergo a comment period and potential lawsuits, it looks like these regulations will end up going into effect. If you are an employer with overtime-exempt workers, you will need to pay your salaried workers at least $58,656 per year to comply with the FLSA.
How Does the New Overtime Rule Work?
The DOL released its final rule in April about FLSA overtime exemptions. Administrative, professional, and executive employees who are salaried must be paid more per year. In July, exempt employees will be paid $43,888 per year or $844 per week. Then, the salary will increase to $58,656 per year and $1,128 per week by January 1, 2025.
Several years ago, the DOL tried to pass a similar update, but the implementation was delayed. While business groups have already requested more time to comply with the legal update, Mary Simmons, vice president of HR Compliance and Learning and Development at Asure, believes the ruling will go into effect. In a recent podcast with Mission to Grow, she said, “This is the biggest change in legislation, federally, that I have seen in a long, long time.”
This change, in large part, is to adjust for rising hourly pay. Some restaurants and retail companies have a history of paying managers a low salary and working them nearly unlimited hours. With the FLSA update, employers will have to pay exempt employees more if they want to count them as overtime exempt.
There is an important caveat to this new rule. Some employers might try to turn a salaried worker into an hourly worker just to avoid paying the FLSA’s higher salary requirement. This approach could potentially land you in trouble with the DOL. If an employee passes the FLSA’s “duties” test and isn’t paid for overtime, they need to be compensated as an exempt worker.
The Impact of FLSA Overtime Regulations on Employers
As an employer, there are a few compliance issues you may have to worry about. Before this rule goes into effect, you need to start thinking about which of your employees are currently exempt, how much they are paid, and how you’ll afford any salary increases. You will need to work with your company’s human resources (HR) department as you figure out how to navigate this change as an organization.
No matter how you decide to pay your employees, you will need to be transparent and open about any changes. You don’t want to turn your best workers into disgruntled employees, so it is important to communicate any changes before they happen.
Updating Overtime and HR Policies
First, you must carefully consider your current overtime and HR policies. If you switch some of your salaried employees to hourly pay, you will need to reevaluate their media, email, and phone use. Once they are hourly workers, managers can’t just text them with questions at any time.
Because many of your salaried employees aren’t used to working for an hourly wage, you may need to cover overtime policies and rules about clocking in. While the employee was previously able to come to work early and enjoy a cup of coffee, they can’t clock in early if they aren’t working. To avoid offending your employee, you will need to address this dilemma with tact.
Managing the Financial Impact
Between 2024 and 2025, the minimum salary for exempt workers will jump by over 60%. Whether you reclassify workers or limit costs in different ways, this ruling is going to change the way you do business. Fortunately, it is going to impact everyone, so you won’t be the only company affected by this ruling.
Reclassifying Employees
One of the first options for mitigating the financial impact is to reclassify salaried workers as hourly workers. However, this must be done with diplomacy and caution. When you talk to the worker about the change, you should be transparent about the reason and walk them through the math. If you’ve been tracking the hours that your salaried employees work, you’ll be able to calculate an hourly wage that would add up to the same amount they earned as a salaried employee once they have worked the same number of average hours each week.
However, you should talk to an HR professional before you reclassify workers. If the workers pass the “duty” test and you’re only reclassifying them to avoid FLSA salary rules, you could end up in trouble with the DOL.
Reducing Other Costs
An alternative way to prepare for this ruling is to find ways to reduce costs in other areas. You may be able to work with a cheaper vendor or decrease the amount you spend on an employee retreat.
Paying a Higher Salary
If your company can afford it, you can simply pay your salaried employees a higher wage. Depending on your organization and industry, you may already pay your workers close to this amount or more. For these employers, adjusting to the higher salary minimum won’t be as challenging.
Increasing Prices
Undoubtedly, some workplaces will simply charge customers more to recuperate the cost. As long as this approach doesn’t price your company out of the marketplace, it can help you reduce the sting of paying higher salaries.
How Do the New FLSA Overtime Regulations Impact Highly Compensated Employees?
Workers who don’t fit the “duties” test can still be paid a salary. However, they are paid according to the rules for highly compensated workers. Currently, highly compensated workers are paid $107,432 per year or $684 per week.
In July 2024, highly compensated workers will need to get paid $132,964 per year or $844 weekly to remain as salaried employees. By 2025, this amount will increase to $151,164 per year or $1,128 per week.
Prepare for New FLSA Overtime Rules to Take Effect
The new FLSA rules for salaried workers will go into effect in July. In January 2025, the minimum required salary will reach $58,656 per year. Businesses only have a short amount of time to prepare for the new overtime rules, so it is important to start getting ready as soon as possible.
If you are trying to understand the new FLSA overtime rules and how they impact your business, we can help. For more information, reach out to Asure’s small business payroll and HR experts today.