Demystifying the New Department of Labor (DOL) Overtime Rule 2024
May 16, 2024
We, here at Expedition HR, understand how confusing and complex human resources can be for a small business. That is why our mission is to help clients save time by sharing important information in a way that is simple, straightforward, and easy for them to implement to stay compliant.
For this reason, we are breaking down the new DOL Overtime Pay Rule in this article in simple language with specific examples. We hope you find it helpful. That said, there are many layers to this new DOL overtime rule, and it is normal for you to have questions specific to your business, so don’t hesitate to reach out. We are here to support you in any way we can!
IMPORTANT NOTE: Before we dive in, it is worth making one clarification - which is that the U.S. Department of Labor (which will be referred to as the "DOL" in this article, enforces the Fair Labor Standards Act (FLSA), which sets basic minimum wage and overtime pay standards. If you'd like to know more about FLSA, you can find more details on this DOL agencies information page.
Register here for our FREE WEBINAR ON THE OVERTIME RULE 2024!
MAY 20, 2024 10-10:30AM MST
What is the Overtime Rule 2024 (also often referred to as DOL Overtime Rule 2024)?
The Overtime Rule 2024 updates the Fair Labor Standards Act (FLSA)'s overtime pay requirements. This rule was created to ensure that more lower-paid salaried workers receive overtime pay protections. Overtime pay can be defined as 1.5x their regular hourly pay rate equivalent.
In other words, the rule ensures that those employees who are not truly working in a salary-exempt (meaning they are not eligible for overtime) capacity are not denied overtime under the Fair Labor Standards Act (FLSA).
For example, this could present an issue if an Administrative Assistant who is paid a low salary on an FLSA exempt status basis but is required to work 65 hours/week without overtime pay, just because the business doesn’t want to pay overtime.
The rule will make sure situations like the above do not happen – and ensure that those not meeting the minimum salary threshold, aka FLSA overtime threshold, are marked as “non-exempt” and therefore receive overtime pay for all hours worked over 40 hours in a work week.
When will the DOL Overtime Rule 2024 become effective?
The new minimum FLSA overtime thresholds will be introduced in two phases:
- The first phase of the rule increases the federal minimum salary threshold to $43,888 on July 1, 2024 ($844 per week)
- The second phase will increase the federal minimum wage to $58,656 on January 1, 2025 ($1,128 per week)
The aforementioned thresholds will be updated every three years based on current earnings data, with the next update scheduled for July 1, 2027.
What type of employees are exempt from the rule?
(This can land employers in hot water if they misclassify...)
Employees are exempt from the overtime rule if they meet ALL the following requirements:
- Are paid a salary higher than $43,888 as of July 1, 2024 and $58,656 on January 1, 2025.
- The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers (defined as executive, administrative, or professional)
- The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance (see below).
“Matters of significance” can be, but are not limited to, when an employee:
- Creates, changes, interprets, or implements management policies or operating procedures
- Carries out major assignments directly related to the business operations
- Creates contracts or negotiates for the employer on matters with significant financial impact
- Provides expert/professional advice to management
- Participates in planning long- or short-term business objectives
- Investigates and resolves employee and/or company matters on behalf of management such as handling complaints, disputes, and/or resolving grievances
In summary, below is a breakdown of the minimum salary threshold currently and into the future:
|
Date |
Standard Salary Level |
Highly Compensated Employee Total Annual Compensation Threshold |
|
Before July 1, 2024 |
$684 per week (equivalent to $35,568 per year) |
$107,432 per year, including at least $684 per week paid on a salary or fee basis. |
|
July 1, 2024 |
$844 per week (equivalent to $43,888 per year) |
$132,964 per year, including at least $844 per week paid on a salary or fee basis. |
|
January 1, 2025 |
$1,128 per week (equivalent to $58,656 per year) |
$151,164 per year, including at least $1,128 per week paid on a salary or fee basis. |
|
July 1, 2027, and every 3 years thereafter |
To be determined by applying to available data the methodology used to set the salary level in effect at the time of the update. |
To be determined by applying to available data the methodology used to set the salary level in effect at the time of the update. |
Who will benefit from this rule?
The analysis of this final rule from the Economic Policy Institute found that 4.3 million workers will benefit from this final rule, with 56% of the workers being women. The largest numbers of impacted workers are in professional and business services, health care and social services, and financial services.
Concerns and Potential Challenges of the New Rule
David French, Executive Vice President of the National Retail Federation, commented that the rule is an unnecessary and burdensome regulation that is hurting small businesses. Beth Milito, Executive Director of the NFIB Small Business Legal Center, shared that many business owners don't have teams of lawyers or compliance officers to help implement changes, thus it will be costly for these businesses to adapt.
Some also say that employers don't have enough time to prepare for this new rule and for this to take effect.
Attorneys anticipate legal challenges to this new rule. Keith Kopplin, an attorney with Ogletree Deakins in Milwaukee, stated that the DOL’s authority is likely to face legal litigation due to the automatic update of the threshold every three years without a separate notice of proposed rulemaking.
All that said, experts still advise against waiting to see if legal challenges ensue and instead, start taking actions to comply. See the Next Steps for Employers section below. Reach out for guidance from Expedition HR.
Next Steps for Employers
HR professionals and employers must lay the groundwork now. Next steps to consider are:
- Run a report to show your employees' titles, current salaries, their non-exempt or exempt status, and number of hours they work on average per week.
- Gather and update job descriptions to ensure all employees’ job duties and responsibilities are accurate.
- Determine (from the above reports and documents) who will be affected by the new rule. Our expert team at Expedition HR has helped numerous clients walk through this audit process - and we'd be honored to help you as well. Set up a free consult today to learn more about working with us.
- Create a communication plan to reclassify employees from exempt to non-exempt as applicable based on the findings in steps #1 and #2. (Be thoughtful about your approach! A hasty process can affect morale and leave employees confused about the reasoning for the change.)
- Ensure you have a system to ensure accuracy with assigning correct FLSA exempt vs non-exempt classifications to newly hired employees or those changing roles within a company.
- Update your timekeeping procedures and systems to account for tracking hours for anyone who is changed to non-exempt as a result of the new rule.
- Ensure your company policy regarding overtime payment for non-exempt employees is clear, including how hours are to be tracked to ensure compliance.
- Provide written notice to each employee about the specific changes to their compensation through a formal letter.
- Provide training for managers and newly non-exempt employees before the changes take effect to ensure they are aware of how this will affect their time tracking. We can help with this training - reach out for details.
- Continue to monitor the rule to ensure any changes or updates are accounted for moving forward!
EXAMPLES / SCENARIOS
To give this a little more context, here are some specific examples:
Example #1
An employee makes a salary of $40,000 as of June 1, 2024 and is categorized as salary, exempt because they meet the salary, exempt requirements*, they must either a) receive a salary increase to bring them to $43,888 as of July 1, 2024; OR b) Be changed to salary, non-exempt or hourly, non-exempt and be paid overtime pay (1.5x their regular hourly equivalent) for any hours worked over 40 in a workweek.
Example #2
An employee makes a salary of $45,000 as of June 1, 2024 and is categorized as salary, exempt because they meet the salary, exempt requirements*, no action is needed because they are above the July 1, 2024 minimum salary threshold of $43,888.
Example #3
An employee is classified as hourly, non-exempt at a rate of $20 per hour ($41,600 annual equivalent). No action is needed under the rule because they are already receiving overtime pay in their non-exempt status.
Example #4
An employee makes a salary of $40,000 as of June 1, 2024 and is categorized as salary, exempt. After review, it is found that they do not meet the salary, exempt requirements*, so they must be either a) changed to salary, non-exempt and be paid 40 hours per week plus overtime pay (1.5x their regular hourly equivalent) for any hours worked over 40 in a workweek; or b) changed to hourly, non-exempt and paid each hour worked, including 1.5x their regular hourly equivalent for any hour worked over 40 in a work week
*Refer back to the section above called “What type of employees are exempt from the rule?”
In Summary
Employers should start the process right away of analyzing employee status, job duties and responsibilities, and pay to determine what changes need to be made to ensure compliance under the rule as of July 1, 2024. (Refer back to next steps section above.)
Experts stress the importance of proceeding with caution when implementing the new rule and having the right support to ensure compliance.
Want to know more about this new rule and receive step-by-step guidance on the next steps as it relates specifically to your organization? Set up a free consult here or reach out to us with questions to [email protected]. It would be our pleasure to ease your stress of dealing with HR compliance!
Register here for our FREE WEBINAR ON THE OVERTIME RULE 2024!
MAY 20, 2024 10-10:30AM MST
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