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How Employers Can Prepare for New Federal Overtime Rule

employees sitting at a table

With the new salary threshold from the US Department of Labor, millions of workers will soon be eligible for overtime pay.

Starting July 1, 2024, the salary threshold will rise from $35K to $44K, and effective January 1, 2025 to $59K. Thus, nearly 4 million workers will need to earn at least this much to be exempt from overtime pay. Therefore, employers will need to act quickly to ensure their policies align with this new change. Here are a few steps you can take now.

Prepare for Changes

Not only is the new salary threshold changing now, with a weekly pay of $684 to $844, but there are a few other changes thanks to the rule. 

For example, the salary threshold will automatically update every three years beginning in 2027. Additionally, the threshold for the HCE (highly compensated employee) exemption will rise to $132,964 in July and $151,164 at the beginning of the new year. 

Review all Company Pay Practices

With the new salary threshold, employees must meet more requirements. To qualify, employees must be paid on a salary basis, be paid at least the minimum weekly salary, and perform certain duties. 

Therefore, it is a good idea to make sure all job policies comply with these requirements.

Decide Which Employees will Qualify

As we get closer to the starting day, a good way to prepare is figuring out exempt and non-exempt employees. Once you decide which employees need to be reclassified as non-exempt, there are a few considerations you need to think about.

For example, how will you decide their overtime rate? Will their weekly salary be divided by 40 hours or simply estimated? Also, it’s important to remember that overtime premiums are based on the employee’s “regular rate of pay.” This includes all types of compensation—everything from bonuses to commissions. Additionally, employers are required to track a non-exempt employee’s time. Therefore, practices must be implemented to make these as accurate as possible.

How This Will Impact Employee Morale

This new change could potentially impact employee morale. For example, non-exempt employees must clock in and out; however, managers and other salaried employees might find this change difficult since the flexibility of being salaried is gone.

If employees feel bad about this change, it’s important to remind everyone that they are valuable members of the team. This change is required and cannot be opted out of, so make sure that part is emphasized to your teams.

Make Sure There is Advanced Notice

As you adjust policies, ensure that employees are informed of the change in a written document. Some states require advanced notice of wage changes, so every company should check their local requirements. 

Review Policies on Company Equipment and Personal Devices

Are there different policies for using company equipment and personal devices for exempt and non-exempt employees? For example, exempt employees might have more freedom to use their personal devices—like smartphones—to conduct business when traveling or out of office hours. For non-exempt employees, there is a limit to this use so that they don’t feel tempted to work off the clock.

If this is the case, you’ll have to consistently apply policies and inform reclassified staff about their new duties.

Develop Training for Managers and New Non-Exempt Employees

It’s important to provide new, detailed training to reclassified employees before these changes occur. Things will be very different for them, so knowing all the details is important.

Things that will need to be covered are overtime approval policies, hours, timekeeping procedures, and off-the-clock work.

Make Sure Exempt Employees Meet the Duties Test

Like all exemptions, a job title or job description does not determine whether an employee is eligible for a white-collar (or other) exemption. To be eligible for exemptions, an employee’s primary duties must comply with both federal and state wage and hour laws.

Review State Laws

Some states have higher salary threshold requirements, while others might have different exemptions. Therefore, it’s important to know your state’s laws and ensure compliance with those requirements.

Stay Up-To-Date on Legal Challenges

Business groups and states who oppose the final rule are expected to file lawsuits in business-friendly jurisdictions such as Texas or Florida to try to derail or sidetrack the rule completely.

Opponents of the new rule may argue that the DOL has no statutory authority to impose a salary requirement. However, due to the uncertainty of litigation, you can’t rely on the rule being halted. It would be best if you prepared for the rule to take effect according to plan.