As of July 1, 2024, new overtime regulations are set to take effect under the Fair Labor Standards Act (FLSA). These changes will significantly impact both employees and employers, particularly those who fall under the “white-collar” exemptions for overtime pay. With these updates, it’s important for businesses to understand the implications of these changes and plan accordingly.

What Are the New Employee Overtime Rules in 2024?

The Department of Labor has issued final rules that increase the salary thresholds for employees classified as exempt from overtime. Historically, employees earning less than $35,568 annually were eligible for overtime pay. The new rules raise the bar significantly, with a phased implementation that begins on July 1, 2024. At this point, employees must earn at least $43,888 per year (or $844 per week) to remain exempt from overtime pay. By January 1, 2025, the threshold will increase again to $58,656 per year (or $1,128 per week).

These thresholds apply to executive, administrative, and professional (EAP) employees, often referred to as the “white-collar” exemptions. Employers will need to evaluate their workforce and determine whether to increase salaries or reclassify workers to non-exempt status, which would make them eligible for overtime pay for any hours worked over 40 in a week.

Changes to Highly Compensated Employee Exemptions

The new rules also impact highly compensated employees (HCE). Previously, employees earning more than $107,432 annually were considered exempt from overtime. However, starting in July 2024, this threshold will rise to $132,964 per year, with a further increase to $151,164 on January 1, 2025. This is a significant jump, and employers should plan accordingly to avoid non-compliance.

What Employers Should Know About the Cost of Overtime Exemptions

With these new thresholds, employers need to decide how to manage the cost of these changes. There are two main options for businesses:

1. Increase Salaries: For employees who are close to the new salary thresholds, it may make financial sense to raise their pay to the new minimum to maintain their exemption status.
2. Reclassify Employees: For employees whose salaries are far below the threshold, it may be more cost-effective to reclassify them as non-exempt. This would make them eligible for overtime pay, but employers must then track hours closely and manage overtime costs carefully.

Preparing for the New Overtime Rules

These new regulations present several challenges for businesses, especially small businesses and those with a large number of salaried employees. Employers should start preparing now by:

• Auditing Current Classifications: Review the salary and job duties of all employees currently classified as exempt. Determine who will be impacted by the new rules and whether it is more cost-effective to increase salaries or reclassify these workers as non-exempt.
• Updating Timekeeping Systems: Non-exempt employees must track their hours worked. Employers will need to ensure that their timekeeping systems are up to date and compliant with federal regulations. This will be especially important for those reclassified as non-exempt.
• Reviewing Employment Policies: Companies may need to adjust policies related to overtime approvals, remote work, and other time-management strategies to mitigate the risk of increased overtime costs.

How Watson & Associates Can Help You Navigate the New Overtime Rules

Understanding the new overtime regulations is critical for compliance and financial planning. At Watson & Associates, we offer personalized accounting and payroll services to ensure that your business stays compliant with all new regulations while minimizing the cost of overtime exemptions. Whether you need help with payroll setup, tax planning, or managing your finances, our team is here to support your business every step of the way.

By staying informed and preparing early, businesses can ensure they are ready to implement these changes seamlessly. If you have any questions about how these changes affect your business or employees, feel free to reach out to Watson & Associates for expert guidance.