What SMBs Should Know About the 2024 Overtime Rule Salary Threshold
Quick look: The new overtime pay rule redefines salary compliance standards for many small- and medium-sized businesses across the country. In this blog, review the latest rule changes and learn how SMBs are adapting their operations to meet these new labor requirements.
The federal government has spent the last several years trying to expand overtime rules for American workers.
Under the Obama administration in 2014 there was attempt to double the threshold, but it was ultimately blocked by a federal judge.
But in late September of this year, the Department of Labor released their final rule that makes some important updates to overtime pay in the United States under the Fair Labor Standards Act (FLSA).
And these new rules take effect January 1, 2020, leaving employers with only a few months to get ready.
The new overtime rule raises the federal salary threshold
On April 23, 2024, the DOL added a new overtime pay rule to the FLSA. Salary threshold raises are the core components of the law update. Starting July 1, 2024, most salaried workers who make less than $844/week, or $43,888 annually, will be eligible for overtime pay. The minimum salary threshold will get another increase on January 1, 2025; at this time, employees earning less than $1,128/week, or $58,656 per year, will be eligible for overtime pay.
Workers paid less than this threshold or who do not meet the necessary exemption tests must be paid 1.5 times their regular pay rate for every hour worked after 40 hours in a workweek.
The last threshold raise was enacted in 2020, which granted overtime to workers earning less than $684/week, or $35,568 annually.
The rule also raises the minimum total compensation requirement. Currently, highly compensated employees (HCEs) with a total annual salary of $107,432 or higher are deemed exempt from overtime. Under the new rule, the total yearly compensation rate will rise to $132,964 by July 1, 2024. The exemption rate will increase again to $151,164 on January 1, 2025.
Finally, the rule introduces a new earnings threshold renewal period. Any wage thresholds will be updated every three years, starting July 1, 2027. This timeframe is set to ensure the fairness of overtime pay is maintained.
What should SMBs do to meet the 2024 overtime rule’s standards?
SMB employers can undertake several initiatives by the designated deadlines to avoid HR compliance issues. Here are some key to help SMBs adhere to the new guidelines of the overtime rule salary threshold.
Employee reclassification: SMBs must reevaluate their workers’ classification status to determine who will be exempt or non-exempt from overtime. In addition to the threshold minimums, exempt employees must meet other criteria like regularly performing executive, administrative, and professional duties. Companies also need to clarify if employees are full-time, part-time, or contracted; they must also mention if workers are paid hourly or on a salary basis. These classifications must be completed by the set deadlines, or businesses can face FLSA violations that may lead to charges and fines.
State and local regulatory compliance: The FLSA only covers the federal guidelines for national overtime pay standards. It is imperative for SMBs to also investigate and align their operations with any overtime requirements set by their state government, local jurisdiction, and industry. Businesses in California, for example, are required to pay non-exempt employees double their regular rate when they work over 12 hours in a workday or over 8 hours on the seventh consecutive day in a workweek. Failure to abide by those rules, even if FLSA expectations are met, can cause SMBs to face substantial business fines, suspensions, and even closures. SMBs should consult with a verified legal expert and their state labor department to ease this process.
Wage budgeting: A solid budget is priority for SMBs, as effective cash flow management is crucial for small business success. Budget assessments allow businesses to determine how well their savings can accommodate overtime pay for their team. With a clear understanding of their finances, SMBs can decide how many overtime workers they can support and plan appropriate salary increases for any employees they wish to keep exempt from the salary threshold.
Time and labor management: Companies rely on accurate time and labor systems to track employees’ work hours and attendance properly. These records drive overtime pay practices, ensuring the right workers receive the right paychecks. SMBs need their management systems to have practical time entry and scheduling functions to protect themselves from salary compliance risks such as incorrectly compensating employees.
Efficient communication: Workers have as much right to know about these overtime rule changes as an SMB’s executive and managing teams. SMBs should craft an open communication strategy to make sure relevant details are clearly explained. From updating relevant policies to creating formal outreach emails, businesses should make any need-to-know information about FLSA as accessible and transparent as possible. SMBs should also contact employees whose classifications or wages are changed due to the salary threshold increase.
ExtensisHR eases compliance for SMBs
The first deadline for the 2024 overtime rule salary threshold is fast approaching. Fortunately, ExtensisHR is a professional employer organization (PEO) providing comprehensive solutions that let SMBs turn their compliance time crunch into a successful venture. SMBs can seek assistance from our compliance experts to navigate all federal, state, local, and industry regulations concerning overtime pay and create a compliance management strategy that ensures best practices for overtime pay are applied across operations.
Besides empowering your overtime pay goals, ExtensisHR provides additional offerings to improve your HR operations:
- Enterprise-level employee benefits for workers’ health and well-being
- Payroll administration that streamlines innovative processing software and reporting tools
- Full-scale recruiting and talent management services at no additional costs for PEO customers
- Risk assessments and workplace safety assistance to protect work environments
- HR support and guidance from our human professionals, not automated chatbots
- A dedicated customer support team to help you achieve your HR goals
By adhering to the DOL’s overtime rule requirements, SMB employers demonstrate financial integrity toward their employees and access more opportunities to grow their business. ExtensisHR boosts SMBs’ ability to maintain overtime pay compliance and stay ahead of future salary thresholds and changes.
Schedule a meeting with us today to learn more about how ExtensisHR can protect your business and ensure compliance with employment regulations.
