As a business owner, you may already know that certain employees at your company are exempt from overtime pay requirements.
The Fair Labor Standards Act (FLSA) has built-in exemptions for executive, administrative, and professional (EAP) employees who meet certain income thresholds. These exemptions are commonly referred to as the “white-collar” or “EAP” exemptions.
If you’ve got employees who meet these criteria, you’ll need to get acquainted with the overtime exemption rule changes that took effect on July 1st, 2024.
BBSI’s got you covered. In this post, we’re going to explain:
Under the changes, approximately 4 million workers will gain overtime protection under the law. If one or more of those work for your company, here’s what you need to know moving forward.
The overtime exemption rule is a section of the FLSA that exempts employees “in a bona fide executive, administrative, or professional (EAP) capacity” from required overtime as long as they meet certain income requirements.
For employees who work in an EAP position, qualification for the exemption hinges on three factors. An employee must:
There are various exceptions and nuances to these requirements. For example, doctors, lawyers, teachers, and outside sales employees are not subject to either salary test. There is also an alternative category of exempt employees for what the law calls “highly compensated employees” (HCEs), with its own requirements.
Since 2020, the weekly salary threshold has been $684 per week (equivalent to a $35,568 annual salary), and the HCE total annual compensation threshold has been $107,432 per year. However, that’s all changed as of July 1st, 2024.
Since 2019, the employees most affected by the white-collar exemption have seen exceptional wage growth. Recognizing this, the Department of Labor has made adjustments to the earnings thresholds in order to reinforce the FLSA’s intended overtime protections.
Beginning on July 1st, 2024:
The 2024 salary threshold increase is based on the following methodology:
These are the same rules that were used to determine the last salary threshold increase that occurred in 2019.
This will also change starting in 2025.
Starting on January 1st, 2025, the salary threshold will increase to the following:
These levels will be calculated using the new salary methodology, which is as follows:
Going forward, future updates will occur every three years. The DOL will rely on salary and compensation data at the time of each successive update. After 2025, the next update is set to take place on July 1st, 2027.
For your hourly workers, you’ll need to take note of the changed salary thresholds, pay close attention to employee time tracking, and ensure you’re meeting obligations under the law to pay each qualified employee overtime.
However, if you have exempt employees who are affected by the changing thresholds, you should consider one of the following actions:
The latest changes to overtime exemptions are designed to help protect employees by expanding the exempt salary threshold. This means more employees than ever will have access to overtime protections. The changes in methodology also mean that going forward, you can expect to see more regular updates to the thresholds.
However, the long-term impact on businesses remains to be seen. Increasing overtime protections is necessary in a world of rapidly rising wages, but smaller businesses may experience a rough adjustment period.
If you’re a small business owner with questions about adjusting to the change or unsure whether some of your employees might be subject to any exemptions under the rule, BBSI can help.
BBSI is more than just a PEO. We’ve got decades of experience helping small and medium-sized businesses in every industry predict and adjust to changes in compliance rules. We’ve also got dedicated HR experts standing by ready to provide the guidance your company needs to navigate changes in wage laws.
Contact your local BBSI expert today.