How to Navigate the New FLSA Overtime Rule

The Department of Labor (DOL) has made a change to who qualifies for overtime pay, which means you may have to change your employees’ classification to comply with the updated Fair Labor Standards Act (FLSA) overtime rule. The rule affects salaried employees who are typically exempt from overtime pay. The premise of the updated rule is to ensure that every worker gets paid for the hours they work, including time that salaried employees work beyond the typical 40-hour work week. Here’s the scoop on the new DOL overtime rule:

• Initially, the salary threshold will increase twice, six months apart, and then once every three years starting in 2027.
  • On July 1, 2024, the salary threshold went up to $844 per week ($43,888 per year).
  • On January 1, 2025, the salary threshold will increase again – this time to $1,128 per week ($58,656 per year).
• The total compensation requirement for highly compensated employees will also increase at the same time.
  • On July 1, 2024, the total compensation for highly compensated employees went up to $132,964 per year.
  • On January 1, 2025, the total compensation for highly compensated employees will increase again, this time to $151,164 per year.

What the FLSA overtime rule changes mean for your business

These changes apply to your salaried or exempt employees, so if you have non-exempt employees who are already being paid overtime in addition to their regular wages you will continue to do so. However, to adapt to these changes, it’s important to identify the employees who might be affected. This can be accomplished by reviewing the salaries of your exempt employees, with special attention to those earning less than $43,888 per year. This exercise will help you understand the impact and plan your next steps accordingly.

Once you understand the population who will be affected by the updated rule, you’ll need to decide which route to take to comply. Businesses typically have the following options:

• Pay overtime: Any employees who makes less than $844 per week or $43,888 per year as of July 1, 2024, will qualify for overtime pay for any hours worked beyond a 40-hour work week. Overtime calculations are typically more straightforward when made using hourly rates. Therefore, you might find it beneficial to convert salaries into hourly rates for ease of these calculations. Remember, under the FLSA, overtime pay is calculated as 1.5 times an employee’s regular rate of pay, multiplied by the number of hours worked over 40 in a work week.
• Adjust salaries: You can provide affected employees a pay raise that brings them above the new salary base of $844 per week or $43,888 per year. You should also consider looking across the organization to ensure that any wage gaps are addressed to avoid any violations.
• Update policies: You have the option to revise your company policies to limit or even prohibit unauthorized overtime. However, it’s important to note that if any employees do end up working overtime, regardless of whether it was authorized or not, they are entitled to be compensated accordingly. There are penalties for not paying an employee their rightful overtime. These can include having to pay back wages, fines, and even the employee’s legal fees.

Keep in mind that with more non-exempt employees in your organization, your record-keeping responsibilities may also increase. To handle the potential increase in administrative tasks, particularly those related to employee timekeeping, you might want to consider leveraging new or enhanced technology solutions. These tools can help streamline your processes, ensuring accuracy and efficiency in your operations.

Communicate changes

Communicating changes to employees about their re-classification, salary increases, or overtime policy updates early and often can help everything go more smoothly. Here are some best practices for communicating changes effectively:

1. Transparency: Be open and honest about the changes. Explain why the change is happening and how it will impact the organization and employees.
2. Early communication: Inform employees about the change as early as possible. This gives them time to adjust and prepare for the change.
3. Use clear and simple language: Avoid using jargon or complex terms. The message should be easy to understand for everyone in the organization.
4. Two-way communication: Encourage feedback and questions. This can help address any concerns or misunderstandings about the change.
5. Regular updates: Keep employees updated about the progress of the change. Regular updates can help reduce uncertainty and anxiety.
6. Empathy: Acknowledge that change can be difficult. Show understanding and provide support where necessary.
7. Training and support: If the change involves new ways of working, such as tracking hours and breaks, provide training and support to help employees adapt to the change.

Conclusion

With the recent updates to the FLSA overtime rule, some of your salaried employees will be affected. It’s crucial that you quickly identify which of your salaried employees fall under these changes and formulate a plan to ensure compliance with the new regulations.

You’ll want to consider that this update may result in a larger number of non-exempt employees within your organization, which could lead to an increase in timekeeping responsibilities. To manage this effectively, you might want to think about implementing a new technology solution. Such a system could automate and streamline your timekeeping tasks, aiding you in maintaining compliance with not only this updated FLSA rule, but any future updates as well.

Regardless of the approach you choose to address with the updated FLSA overtime rule, open and frequent communication with your employees will be key. Keeping everyone informed about these changes early and often will ensure a smooth transition for everyone.

Learn more about how UKG Ready can help you manage all aspects of compliance with modern tools that help you minimize risk.