Overtime Rule Update: Significant Changes to Salary Thresholds

Introduction

The U.S. Department of Labor (DOL) has introduced a new overtime rule, to be implemented in two phases, significantly increasing the salary-level threshold for white-collar exemptions under the Fair Labor Standards Act (FLSA). This change will directly impact millions of workers, offering them new eligibility for overtime pay. The first increase sets the annual salary threshold at $43,888 starting July 1, and the second will raise it to $58,656 on January 1, 2025.

Navigating the New Overtime Rule: A Two-Phase Approach

The DOL's strategy to phase in the salary threshold increase allows businesses time to adjust, but also presents challenges as employers must decide whether to increase salaries to maintain exemptions or reclassify employees as non-exempt. This adjustment could be particularly taxing for small businesses, which may face tough decisions regarding employment cuts or wage increases.

Key Insights:

• Immediate Impact: The rule raises the salary threshold from the current $35,568 to $43,888, affecting approximately 1 million workers who are currently exempt.
• Future Changes: In 2025, the threshold will jump again to $58,656, potentially impacting an additional 3 million workers.
• Exemption Criteria: To qualify for white-collar exemptions, employees must meet the new salary threshold and specific duties tests.
• Strategic Compliance: Employers need to plan whether to increase salaries to retain exempt status for eligible employees or reclassify them as non-exempt, which could involve additional overtime costs.
• Legal Preparations: Given the possibility of legal challenges to the new rule, employers are advised to prepare cautiously and consult with legal experts to navigate the upcoming changes.

Action Steps for EG

Mid-Year Action Plan: EG will create and release a comprehensive action plan addressing mid-year escalations. This plan will incorporate updates on minimum wage regulations and any other relevant statutory changes.

Action Steps for Employers

As the rule brings substantial modifications to the exemption status of many employees, businesses should:

• Review Employee Salaries: Assess the salaries of currently exempt employees who are near the new thresholds.
• Consider Reclassification: Decide on increasing salaries or reclassifying employees as non-exempt.
• Implement Training: Train reclassified employees on timekeeping and compliance with overtime rules.
• Monitor Legal Developments: Stay updated on legal challenges and rulings that might affect the implementation of the new rule.

Conclusion

The DOL's new overtime rule represents a major shift in employment law, aiming to expand overtime protections and ensure fair pay for lower-paid salaried workers. While the rule promises enhanced compensation for many, it also poses significant compliance challenges for employers. As the landscape evolves, both employers and employees must remain vigilant and informed to navigate these changes effectively.