Legal Update: New DOL Overtime Rule to Expand Eligibility Starting July 2024

More Employees May Soon Be Overtime Eligible

It was a busy day in Washington, D.C. Hours before the FTC voted to ban non-compete agreements, the Department of Labor (DOL) announced a Final Rule marking a significant update to the overtime regulations under the Fair Labor Standards Act (FLSA). This update, effective July 1, 2024, modifies the earnings thresholds for exempt employees, thus expanding overtime eligibility to more workers. According to the DOL, this regulatory change aims to reflect cost of living increases and ensure that employees receive fair compensation for overtime work.

Background

The FLSA mandates that employees covered by the Act must receive overtime pay for hours worked over 40 in a workweek at a rate not less than one and one-half times their regular rates of pay. The last update to the overtime rule in 2019 set the salary threshold below which workers are eligible for overtime, excluding certain "exempt" categories based on their job duties and salary levels. Since then, there has been significant discourse about the need to adjust this threshold to account for economic changes and inflation.

Details of the DOL’s Updated Overtime Rule

1. New Salary Thresholds
   • The DOL has increased the salary threshold for exempt employees from the previous level set in 2019. This change means that employees earning below this new threshold are eligible for overtime pay, regardless of their job duties.
   • Effective July 1, 2024, the salary threshold will increase to the equivalent of an annual salary of $43,888 and increase to $56,656 on January 1, 2025.
   • The July 1, 2024, increase adjusts the current salary threshold of $35,568, using the methodology used by the prior administration in the 2019 overtime rule update.
   • The January 1, 2025, increase uses this rule's new methodology which results in the additional increase.
2. Expansion of Eligibility
   • This adjustment significantly expands the number of workers eligible for overtime, aiming to bolster earnings for lower and middle-income workers who log long hours.
3. Effective Date
   • The new rule will take effect on July 1, 2024, giving employers ample time to adjust payroll systems and compliance procedures accordingly.
   • The rule requires the salary thresholds to update every three years by applying up-to-date wage data to determine new salary levels, so employers should prepare for another update on July 1, 2027 - if the rule stands.

Strategic Implications for Businesses

With the implementation of these updated overtime regulations, businesses must take immediate steps to ensure compliance by the designated effective date. Employers should:

• Audit Payroll Practices: Review current salaries and adjust payroll practices to meet the new thresholds. This may involve raising salaries to maintain exempt status for certain employees or restructuring work hours to manage overtime costs.
• Review Employee Classifications: Reassess which employees are classified as exempt under the new salary criteria to ensure all classifications are accurate and comply with the updated rule.
• Update HR Policies and Training: Inform HR teams and management about the changes to ensure proper tracking of hours and overtime pay. Update employee handbooks and training materials to reflect these new policies.
• Financial Planning and Budgeting: Consider the financial impact of increased overtime payments on operational budgets and project costs. Planning will be crucial to accommodate the potential increase in labor costs without sacrificing business objectives.

Conclusion

The Department of Labor's update to the overtime regulations marks a significant shift in the labor landscape, aiming to enhance worker protections and adapt to current economic conditions. As with any regulatory change, preparedness is key to smooth transitions. Our firm is prepared to assist your organization in adjusting to these new rules, ensuring compliance, and minimizing any disruption to your operations.

Please contact us to discuss how these changes affect your business and explore strategies for effective implementation.

Note: This alert is not legal advice. It provides an overview of the law’s key components, but there are other nuanced areas of the law that may apply to your business. For additional information, visit the DOL’s press release here.