May 06, 2024

Major Overtime Change Will Deeply Affect Employers

On April 23, 2024, the Department of Labor issued a new rule that is going to make many more employees eligible for overtime. Read through for details on the important changes that may deeply affect your payroll.

According to a Department of Labor release, a newly issued rule increases the salary threshold required to exempt a salaried bona fide executive, administrative or professional employee from federal overtime pay requirements.

The release states, "Effective July 1, 2024, the salary threshold will increase to the equivalent of an annual salary of $43,888 and increase to $58,656 on Jan. 1, 2025." The present annual salary threshold is $35,568. "Starting July 1, 2027, salary thresholds will update every three years by applying up-to-date wage data to determine new salary levels," the release says.

What does this mean?

In an explanation of the new rule, the DOL gives background on overtime regulation. In brief, the venerable Fair Labor Standards Act of 1938 set rules for minimum wages and additional payment for overtime. However, certain groups have been exempt from the overtime provisions, particularly those falling into the so-called EAP group (executive, administrative and professional employees).

An employer can't simply decide employees fall into the EAP group, however. Employees must meet the following three criteria:

1. They must be paid a salary, meaning that they are paid a predetermined and fixed amount that is not subject to reduction because of variations in the quality or quantity of work performed.
2. They must be paid at least a specified weekly salary level.
3. They must perform primarily executive, administrative or professional duties, as provided in the DOL's regulations.

The new rule ups the figure for criterion No. 2. As of July 1, that weekly pay is $844, equivalent to the $43,888 annual figure noted above. The big takeaway for employers is that employees who do NOT meet the new salary levels are entitled to overtime after 40 hours/week. This is true even if they meet criteria No. 1 and No. 3. In short, it is now harder for employers to classify workers as belonging to the EAP group.

Just the beginning

So is that all you need to know? Actually, no. There are additional provisions and exceptions, as well as changes to the important "highly compensated employee" limits. The rules have always been complicated, and these changes do not simplify anything. Indeed, the new published rule runs more than 300 pages — more words than Charles Dickens' "A Tale of Two Cities." Also, your state may have additional overtime rules.

For now, the two takeaways are:

1. Open your payroll files because there's a good chance you'll have to make changes.
2. Call your payroll advisers to go over your situation.

If and when the DOL publishes more guidance, we'll certainly follow up.

 ©2024