The Department of Labor (DOL) recently announced a significant update to the overtime rule, impacting both employees and employers across various industries. This rule, under the Fair Labor Standards Act (FLSA), entails an increase in the minimum salary threshold and highly compensated employee (HCE) threshold. Understanding the implications of these changes is crucial for businesses and workers alike.

Threshold Increases

Effective July 1, 2024, the minimum salary threshold will increase from $684 per week / $35,568 per year to $844 per week / $43,888 per year. This change will be followed by another significant increase on January 1, 2025: $1,128 per week / $58,656 per year.

Simultaneously, the HCE threshold is set to rise from $107,432 to $132,964 on July 1, 2024, and further to $151,164 on January 1, 2025. Additionally, an automated update for both thresholds is scheduled to occur every three years starting July 1, 2027.

Bonuses and Incentive Payments

Employers can apply nondiscretionary bonuses and incentive payments, including commissions, to cover up to 10% of the new minimum salary threshold. These payments must be made on an annual or more frequent basis.

If an employer falls short of meeting the required salary after a 52-week period, they have one pay period to make a catch-up payment. This payment ensures the employee’s compensation reaches the necessary level. It’s important to note that this catch-up payment only applies to the previous year’s salary and not the current year’s amount.

Expanded Eligibility for Employees

One of the most notable effects of the new overtime rule is the expanded eligibility for overtime pay among employees. With the minimum salary threshold rising, more workers may now qualify for overtime compensation. This change provides an opportunity for those previously exempt from overtime to receive additional pay for their extra hours of work, potentially resulting in higher earnings.

Potential Benefits for Employees

With more employees qualifying for overtime pay, workers who previously may have struggled to make ends meet on their regular salaries alone now have the opportunity to boost their earnings through overtime hours. This additional income can help improve financial stability and provide opportunities for savings or investment.

Additionally, the increased eligibility for overtime pay could lead to a more favorable work-life balance. Employers may opt to limit overtime hours to avoid additional costs, which could effectively promote a healthier work environment and improve employee satisfaction.

Impact on Employers

The new overtime rule presents some challenges for employers, primarily in terms of increased labor costs. Businesses may need to adjust their compensation practices to ensure compliance with the updated thresholds. This could involve raising salaries to meet the new thresholds and maintain exempt status or reclassifying employees as non-exempt and paying overtime accordingly.

Operational Adjustments for Businesses

Businesses may need to reconsider their staffing levels, workload distribution, and scheduling practices to manage overtime costs effectively. This might entail hiring additional staff, redistributing tasks among existing employees, or implementing new scheduling strategies to mitigate the impact of the rule change on their bottom line.