On April 23, 2024, the U.S. Department of Labor (Department) announced a final overtime rule that brings significant changes to the regulations governing overtime pay and minimum wage exemptions for certain employees.
The new overtime rule, titled “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees,” is set to take effect on July 1, 2024.
Here’s what you need to know to navigate these updates and ensure compliance within your organization.
Key Changes in the Final Overtime Rule
The final rule revises regulations under section 13(a)(1) of the Fair Labor Standards Act, specifically targeting exemptions for executive, administrative, and professional (EAP) employees.
The revisions include increases to the standard salary level and the highly compensated employee total annual compensation threshold. Additionally, the ruling introduces a mechanism for timely updates of these earnings thresholds to reflect current data.
Criteria for EAP Exemption
To qualify for exemption from minimum wage and overtime protections under the Fair Labor Standards Act, employees must meet specific criteria, including:
- Being paid a predetermined and fixed salary that is not subject to reduction based on work quality or quantity.
- Receiving at least a specified weekly salary level.
- Primarily performing executive, administrative, or professional duties as outlined in the Department’s regulations.
The ruling also outlines an alternative test for highly compensated employees, which considers both salary and duties.
Scheduled Increases in Thresholds
The final rule sets forth scheduled increases in the standard salary level and the highly compensated employee total annual compensation threshold, starting from July 1, 2024. These increases aim to keep pace with economic changes and ensure fair compensation for employees.
Here’s a breakdown of the scheduled increases:
- The threshold for the standard salary level will increase from $35,568 to $43,888 effective Jul. 1, 2024, and again to $58,656 effective Jan. 1, 2025.
- The threshold for the highly compensated employee exemption will increase from $107,432 to $132,964 effective Jul. 1, 2024, and again to $151,164 effective Jan. 1, 2025.
- The threshold salaries for exemptions under FLSA will update automatically starting Jul. 1, 2027, and every three years thereafter.
Preparing Your Business for the New Overtime Rule
With the implementation of the new overtime rule, employers will need to evaluate their current employee classifications and ensure that they comply with the updated regulations.
Though legal challenges are expected, it is still nonetheless crucial for businesses to take proactive steps to ensure compliance.
We recommend the following actions:
Conduct a Classification Audit
Employers should conduct a comprehensive audit of employee classifications to ensure that employees are correctly classified as exempt or non-exempt based on the new regulations. This audit should involve reviewing job duties, salary levels, and other relevant factors to determine compliance with the overtime rule.
Communicate Changes to Employees
It is essential for employers to communicate the changes introduced by the new overtime rule to their employees. This will help employees understand their rights and ensure transparency in the implementation of the new regulations. Clear communication can also help prevent potential misunderstandings or disputes regarding overtime pay.
Monitor and Review Compliance
Employers should establish mechanisms to monitor and review compliance with the new overtime rule on an ongoing basis. Regular audits and assessments can help identify any potential issues and address them proactively to avoid legal consequences. Additionally, employers should stay informed about any future updates or revisions to the regulations to ensure continued compliance.
XpanseHR Can Help
At XpanseHR, we understand the complexities of managing compensation in a changing regulatory landscape. Our Compensation Practice offers tailored solutions to help businesses navigate the intricacies of the new overtime threshold ruling. From conducting pay structure reviews to providing expert guidance on policy updates, we’re here to support your organization every step of the way.
Stay ahead of the curve and ensure compliance with the latest regulations. Contact us today to learn more about how our Compensation Practice can benefit your business.
