On April 23, 2024, the U.S. Department of Labor (DOL) announced new rules that change the salary requirements for employees who don’t get paid overtime. This will go into effect on July 1, 2024, and will affect many workers across the United States. If you run a business, it’s important to understand these changes and how they might impact your employees.
What Are the Current Rules?
Right now, to be exempt from federal overtime pay, a worker must:
- Have certain job duties (known as the “duties test”).
- Earn a salary of at least $684 per week ($35,568 per year).
What Are the New Rules?
The new rules will increase the minimum salary required for employees to be exempt from overtime pay. Here’s what will change:
- Starting July 1, 2024:
- The minimum salary will go up to $844 per week ($43,888 per year).
- Starting January 1, 2025:
- The minimum salary will increase again to $1,128 per week ($58,656 per year).
- Every Three Years:
- The salary threshold will be updated based on wage data.
Highly Compensated Employees (HCE)
The rules for highly compensated employees (HCE) are also changing. These employees have a higher salary and are usually exempt from overtime pay.
- Starting July 1, 2024:
- The annual salary threshold for HCEs will increase from $107,432 to $132,964.
- Starting January 1, 2025:
- The threshold will rise again to $151,164.
- Every Three Years:
- The HCE threshold will also be updated based on wage data.
What Stays the Same?
The duties test will not change. This test looks at the type of work the employee does to decide if they can be exempt from overtime pay. Even if an employee meets the new salary requirements, they still need to pass the duties test to be considered exempt.
How Will This Impact Employers?
The new rules will affect many employees. For example, if you have workers who are currently exempt but earn less than the new salary thresholds, you will need to make some decisions. You can either:
- Increase their salaries to meet the new requirements, or
- Reclassify them as nonexempt, which means they will be eligible for overtime pay.
Steps Employers Should Take
It’s important for employers to start preparing now. Here are some steps you can take:
- Review Employee Salaries: Look at your current employees and see who earns less than the new salary thresholds.
- Decide on Salary Increases or Reclassification: Decide whether to raise their salaries or reclassify them as nonexempt.
- Update Payroll Systems: Make sure your payroll systems can handle the new rules and track overtime pay correctly.
- Communicate with Employees: Explain the changes to your employees so they understand how it might affect them.
Why These Changes Are Happening
The DOL updates these rules to make sure salaries keep up with the cost of living and changes in the economy. The last major update was in 2020, and before that, the rules hadn’t changed since 2004. By raising the salary thresholds, the DOL aims to ensure that more workers receive fair pay for overtime work.
Potential Legal Challenges
It’s possible that these new rules could face legal challenges, similar to what happened in 2016 when a similar rule was blocked. However, it’s still a good idea to prepare for the changes in case they do go into effect as planned.
Conclusion
The new salary thresholds for exempt employees will bring significant changes for many employers and employees starting in 2024. By understanding the new rules and taking the necessary steps to comply, employers can ensure they are prepared for these changes.
The experts at guHRoo Payroll and HR are here to help you navigate these new rules. Whether you need assistance reviewing employee classifications or updating your payroll systems, our team is ready to support you. Stay informed and proactive to make sure your business remains compliant with the new regulations.
For more information and personalized assistance, contact guHRoo Payroll and HR today.
