Thanks to a final rule by the U.S Department of Labor this week, millions of American workers will soon be eligible for overtime pay.

This new development represents the biggest change in the federal overtime increase in decades. Starting July 1, all salaried workers earning less than $43,888 a year will be legally qualified for 1.5 times their pay if they work more than 40 hours per week. The current overtime threshold is $35,568 a year. Let’s take a look at what the DOL salary threshold increase of 2024 means for employers and business owners.

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Quick overview of the new overtime law 2024

The Department of Labor announced a final overtime rule on April 23rd, 2024 titled Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees.

This new rule will force employers across the US to review how their employees are paid and their company time tracking policies and employee time tracking procedures.

The rule revises the regulations implemented under Fair Labor Standards Act (FLSA) that define which employees are exempt from minimum wage and overtime pay requirements.

When does the new overtime rule come into effect?

The rule becomes effective in two phases. The first phase will come into effect July 1, 2024. The second phase will  come into effect January 1, 2025.

Two-step increase

The salary threshold will increase in two steps. The first increase comes on July 1, 2024 and the second on January 1, 2025. This gives employers the option to either incrementally comply with the rule’s increased salary threshold or raise the salary threshold immediately to the 2025 level and ensure compliance without having to go through the process of increasing the threshold twice in 8 months.

Automatic future updates

The rule also states that the salary threshold willl be automatically updated every three years based on wage data at the time of the update.

The new overtime salary threshold of 2024

The first increase will move the salary threshold from $35,568 to $43,888 a year, meaning that employees who earn less than $43,888 of employees eligible for overtime pay will qualify for time-and-a-half pay if they work more than 40 hours a week.
The second increase will happen January 1st 2025, expanding the threshold from salaried workers making less than $43,888 a year to $58,656.

Who is affected by the new overtime rule?

Employers who have overtime exempt employees working as part of their workforce are impacted by the new overtime rule.

Exempt vs nonexempt employees

As an employer you have a legal duty to classify your employees properly according to the FLSA. Failure to classify employees properly as exempt vs nonexempt can cost you a lot of money in penalties. Employee classification is the most important thing to understand in order to ensure compliance with this new rule issued by the DOL.

This new rule raises the salary threshold for employees exempt from overtime pay, meaning that they are eligible for overtime pay after July 1st, 2024.

How much is overtime pay?

Overtime pay is 1.5 times the hourly salary of the employee. That means that for each hour of overtime, the employee receives 1.5 times the hourly salary they normally would. Overtime pay is also called time-and-a-half pay.

Who gets paid overtime?

Nonexempt employees receive overtime pay when they work more than 40 hours a week.

Advice for employers affected by the new overtime rule

Employers need to understand the impact this new rule will have on their business. As the rule takes effect in July and next January in two phases, employers have to think ahead to ensure compliance with the regulations.

Here are a few tips for employers affected by the salary threshold increase:

How is your current workforce classified?

Misclassifications can cost employers a hefty sum in penalties, so this is the perfect time to review the existing classification of your workforce. Review which employees are classified as exempt and nonexempt to make sure you are compliant.

How will the new overtime rules impact your workforce?

Once you understand what percentage of your workforce is classified as exempt from overtime regulations, review whether they will be impacted by the new rule to understand what action you must take.

How will you stay compliant with the rule?

Do your research and understand whether there are any other local or state laws governing how your employees are paid. As an employer you have a few options: you can either decide to increase the salary of your employees classified as exempt to the new salary threshold or decide to reclassify them as nonexempt and be subjected to higher overtime costs.

How will you track overtime?

While exempt employees are not eligible for overtime pay, nonexempt employees must keep track of their overtime according to the employer’s time tracking policy. This new rule has the potential to cause more employees to be classified as nonexempt, which means more employees will be required to start tracking the hours they work as well as their overtime. As an employer, you may want to reconsider how you track employee overtime and ensure that your processes are compliant with federal time tracking regulations.

Track employee overtime with Factorial

The easiest method of tracking employee time is using HR software like Factorial. Our platform is designed with SMBs in mind and used by 10.000 companies around the world to manage their people operations, people development, and finance processes. With Factorial, you can manage all things related to your business: track time, hire quickly, manage talent, and pay your employees with a few simple clicks. However, our flexible pricing allows you to choose only the tools you need. This way you can get a solution tailored to the needs of your business. Get in touch with an HR product specialist and we will answer all of your questions. Book a free demo today!

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