Preparing for Potential Overtime Changes

Changes Could Be Coming

Whether or not you pay employees overtime right now, the number of staff you compensate in this manner could be changing. 

Meaning you might owe more employees overtime in the future.   

The U.S. Department of Labor announced at the end of August a proposed overtime rule under the Fair Labor Standards Act (FLSA). If implemented, the new overtime rule would expand overtime pay protections to an estimated 1.1 million additional workers. 

The Proposed Overtime Rule

The DOL’s proposed overtime rule focuses primarily on the salary threshold for employees exempt from overtime pay. 

Under the existing FLSA overtime rule, employees generally are eligible for overtime pay if they work more than 40 hours in a workweek and earn less than the predetermined salary threshold — $455 per week ($23,660 annually). 

The proposed rule seeks to raise this threshold to $679 per week ($35,308 annually).

What Do You Need to Do? 

The proposed overtime rule could significantly impact how small- and mid-size businesses manage their workforce and labor costs. Owners, leaders, and payroll experts first need to review the proposed changes and then examine employee classifications, budgets, and, potentially, seek legal counsel. Most of all, remaining adaptable and responsive is going to become necessary—especially since this could set up more changes in the future.

Here’s what you should focus on now:

Increased Salary Threshold: We already covered the potential new limit of to $679 per week ($35,308 annually). While it’s good for individuals’ personal budgets, business bottom lines could shift rapidly. 

Carefully review your workforce now to see how you might need to adjust your wage policies to comply with the new rule should it go into effect. If you have employees earning salaries close to the current threshold, a viable option might be to raise salaries above the proposed limit to maintain exempt status. 

Alternatively, you might be able to reclassify certain employees as non-exempt, which would require tracking hours worked and paying overtime accordingly. Adjusting schedules and workloads might be necessary to mitigate increased labor costs.

Regular Updates: The proposed rule also might open the door for regular updates to the salary threshold. This would help ensure that it keeps pace with inflation and wage growth, preventing it from becoming outdated.

However, that also means you will have to repeat the first step of monitoring wages and classifications on an ongoing basis.

Exempt and Non-Exempt Employee Classification: You will need to review the classification of their employees as exempt or non-exempt. Exempt employees are not entitled to overtime pay, while non-exempt employees are. The changes in the salary threshold may impact how employees are classified.

Duties Test: In addition to the salary threshold, the DOL might review and modify the duties test for exempt employees. This test assesses whether an employee’s job duties meet certain criteria to qualify for exemption from overtime pay. Any changes in this test could affect how businesses classify employees.

You Can Have Your Say 

The DOL invited public comments on the proposed rule, encouraging stakeholders to provide feedback and suggest modifications. This step ensures a balanced consideration of the rule’s impact from various perspectives. After the comment period closed, the DOL would review the comments and potentially make adjustments to the final rule before implementation.

By raising the salary threshold, more workers would be eligible for overtime pay, ensuring fair compensation for their extra efforts. While this change would benefit workers, employers would need to adapt their practices to comply with the new rule. It is vital for all stakeholders to stay informed about these changes and actively participate in the rule-making process to shape fair labor standards for our workforce.

If you have input you’d like to share, the time is now. Download our full explanation of what to know here: Preparing for the DOL’s Proposed FLSA Overtime Rule.