Introduction
Starting July 1, 2024, the Department of Labor (DOL) will implement new rules under the Fair Labor Standards Act (FLSA) that impact overtime pay. Here’s a detailed breakdown to help you understand these changes and how they might affect your business.
Outline of the Article
- Key Changes
- What this Means for Trade Businesses
- State-Specific Considerations
- Action Steps for Employers
- Conclusion
- FAQs - Frequently Asked Questions
Key Changes
Increased Salary Thresholds
One of the most significant changes of the new overtime rule is the increase in the minimum salary threshold for white-collar employees (executive, administrative, computer-based roles and professional workers). Employees earning below this threshold must now receive overtime pay for working over 40 hours a week. To qualify for exemption from overtime pay, these employees must now earn at least $844 per week, which translates to $43,888 annually. That's an increase of $160 per week or $8,320 annually. This threshold will rise again in January 2025 to $1,128 per week ($58,656 annually).
What is Highly Compensated Employees (HCE)
A highly compensated employee (HCE), as defined by the IRS, is someone who either earns more than a specified amount set by the DOL or owns more than 5% of the business at any time during the current or previous year, regardless of their earnings. This is particularly relevant in the construction industry, where many white-collar positions, like directors or executives, are often held by part-owners. The threshold amount that classifies an HCE is what’s undergoing change, and these adjustments are detailed below.
Changes to Highly Compensated Employees (HCE)
The DOL has also increased the total annual compensation requirement for Highly Compensated Employees (HCEs). Starting in 2024, HCEs must earn at least $132,964 annually, with this amount increasing to $151,164 in 2025. Additionally, these thresholds will be automatically updated every three years beginning in July 2027 to keep up with wage growth and inflation.
What This Means for Trade Businesses
For businesses, particularly those in the trade sectors such as construction, plumbing, or electrical work, it’s important to note that these changes primarily affect office and administrative staff. Field technicians and tradespeople typically fall under different classifications and are less likely to be impacted by these specific changes.
However, employers must carefully review the salaries of their white-collar employees. Those currently earning below the new thresholds will either need a salary increase to maintain their exempt status or will become eligible for overtime pay.
State-Specific Considerations
Certain states, including California and New York, already have higher salary thresholds for exempt employees than the new federal standards. Businesses operating in these states may already comply with the upcoming federal thresholds, but it’s crucial to stay informed about the 2025 increases and any subsequent adjustments.
Action Steps for Employers
1. Review Current Salaries:
Conduct a thorough review of your employees’ salaries to determine who will be affected by the new thresholds.
2. Adjust Compensation:
Decide whether to raise salaries to meet the new requirements or to reclassify employees as non-exempt and pay overtime.
3. Communicate with Employees:
Clearly inform your staff about these changes, how they will affect their pay, and any steps you are taking to comply with the new rules.
4. Plan for the Future:
Prepare for the 2025 increases and the automatic updates that will begin in 2027. Regularly review your compensation strategies to stay compliant.
Use Grownu's time and overtime tracking system to comply the new DOL changes
The 2024 DOL overtime rule changes are significant, but with proper planning and clear communication, businesses can navigate these updates smoothly. By reviewing and adjusting salaries where necessary and staying informed about future changes, employers can ensure compliance and maintain a motivated workforce. By using Grownu to review and adjust salaries as needed and stay informed about future changes, employers can ensure they meet the new requirements while maintaining a motivated workforce. All overtime can be easily calcualted without any human interaction within the system.
For more detailed information, you can visit the Department of Labor's official page and Fair Labor Standards Act (FLSA).
FAQs - Frequently Asked Questions
1. What are the key changes to the overtime rules starting in 2024?
Starting July 1, 2024, the minimum salary threshold for white-collar employees to qualify for overtime will be $844 per week ($43,888 annually). This threshold will increase to $1,128 per week ($58,656 annually) in January 2025. Additionally, the Highly Compensated Employee (HCE) threshold will be $132,964 in 2024, rising to $151,164 in 2025. These thresholds will adjust every three years starting in July 2027.
2. How do these changes impact trade businesses?
These changes primarily affect office and administrative staff, not field technicians or tradespeople. Employers need to review the salaries of their white-collar employees. Those earning below the new thresholds will either need a salary increase or will become eligible for overtime pay.
3. What should employers in states like California and New York do?
Employers in states with higher existing thresholds, such as California and New York, may already comply with the new federal thresholds for 2024. However, they should still prepare for the 2025 increases and any future automatic updates to ensure ongoing compliance.
4. What actions should employers take to comply with the new rules?
Employers should: review current salaries to identify affected employees. Adjust compensation to meet new thresholds or prepare to pay overtime. Communicate changes to employees, explaining how it affects their pay. Plan for future increases and automatic updates starting in 2027.
5. How will these changes benefit employees?
Employees currently earning below the new thresholds will benefit from either an increase in salary to meet the exemption criteria or from becoming eligible for overtime pay. This ensures fair compensation for their work hours and can improve overall job satisfaction and financial well-being.
