If you’ve heard about recent changes to labor laws, you might be wondering if and how they may affect your business. To stay informed and ensure that your business remains compliant, you must understand a recent Department of Labor (DOL) ruling that has significantly raised the salary threshold to qualify for overtime exemptions.
So, what exactly does this FLSA salary threshold increase entail—and what might this new overtime rule mean for your business?
Understanding Recent Changes
On April 23, 2024, the DOL announced a final ruling on proposed changes to the DOL white-collar exemption that have been in the works for some time. Specifically, the new ruling drastically increases the minimum salary to qualify for overtime exemptions under the Fair Labor Standards Act (FLSA)—with the initial increase going into effect by July 1, 2024 and a final increase by January 1, 2025. The ruling also stipulates that minimum salary data will be revisited and updated (as needed) every three years to reflect economic changes.
The new DOL ruling will raise the annual minimum salary to qualify for white-collar overtime exemptions to $58,656 annually—a notable increase over the previous threshold of $35,568 per year. Meanwhile, the annualized salary threshold for highly compensated employees is slated to increase from $107,432 to $151,164.
Potential Impact on Business and Payroll
As you can probably imagine, these changes could have a significant impact on businesses and their payroll structures. Specifically, businesses with employees who had met the threshold for overtime exemptions in previous years may find that these same employees no longer meet the maximum salary threshold—meaning they may now legally be entitled to overtime pay for any time worked over the standard forty hours per week.
This kind of scenario is perhaps most likely to play out in small- to medium-sized businesses. In fact, the DOL estimates that in the first year of the new rule taking effect, four million employees will be affected—with the majority of them being in professional and business services.
Steps to Ensure Compliance
If you anticipate that your business may be affected by the FLSA salary threshold increase, there are some steps you can (and should) take now to be proactive and avoid compliance issues.
First, employers should identify current employees who are exempt from overtime pay and determine whether they will satisfy the new salary threshold or not. In some cases, it may make the most financial and logistical sense to increase salaries to the minimum threshold in order to maintain their exempt status.
In other cases where employees will need to change classification to non-exempt, businesses should explore options to minimize the potential financial impact of overtime pay. This may include implementing fluctuating work days and/or hours or limited overtime hours worked.
When creating a game plan for handling changes to the salary/overtime threshold, employers should also be careful to consider and adhere to state overtime laws—as these can sometimes differ from Federal laws.
Looking for Further Guidance?
The DOL’s new overtime rule and FLSA salary threshold increase will affect many businesses, so staying on top of these changes and being proactive about reevaluating employee classifications is a must. Still, navigating these changes can be complicated, especially when state overtime laws and other regulations come into play.
If you’re looking for guidance on remaining in compliance and minimizing the potential impact of these changes on your business, ASAP Payroll is here to help. Get in touch today for expert assistance and seamless payroll solutions tailored to the latest legal requirements.
