What You Need to Do Now to Prepare for the New FLSA Overtime Rule

By Jeanette Coleman, SPHR & SHRM-SCP on Apr 30, 2024
7 min read 2 Comments

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In a significant revision to labor regulations, the U.S. Department of Labor (DOL) has recently finalized major changes to the Fair Labor Standards Act (FLSA) overtime rule. Set to take effect on July 1, 2024, these changes will see the overtime salary threshold for white-collar exempt employees increase in two stages: initially to $43,888 per year and then to $58,656 per year by January 1, 2025. 

This update marks a substantial shift from the last proposed changes in 2019 and is designed to extend overtime eligibility to millions more workers across the United States.

RELATED: Updated DOL Overtime Rule Expands Eligibility to Millions >>

Strategic Preparation for the New FLSA Overtime Rule

The phased rollout of these new thresholds offers a crucial preparation window for employers, particularly small and mid-sized businesses, who will need to adjust their payroll systems and management strategies to comply with the updated rule.

As we approach these changes, here are five actionable steps employers can take right now to prepare for and manage the impact of the new FLSA overtime rule:

Examine Employee Classifications

A crucial initial step in adapting to the new FLSA overtime rule is to thoroughly examine and potentially reclassify your workforce. Ensure that each employee's job classification aligns with the updated overtime eligibility criteria.

This involves a detailed review of job descriptions, responsibilities and salary levels to determine if employees classified as exempt still meet the new threshold requirements.

  • Salary Basis

    Confirm that employees classified as exempt are paid a fixed salary that meets or exceeds the new minimum salary threshold for exemption. Remember, the threshold will initially increase to $43,888 per year effective July 1, 2024, and then to $58,656 per year by January 1, 2025.

  • Duties Test

    Review the specific duties of each exempt employee. The exemption criteria require that their primary job duties are executive, administrative or professional as defined by the FLSA.

Reclassification may be necessary if employees no longer fit the exempt status under the new rules. This reassessment not only helps in adhering to the new legal requirements but also in managing payroll budgets more effectively as the scope of overtime eligibility widens. Consider consulting with HR professionals or legal experts to ensure that classifications are accurate and compliant.

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Assess Work Hours to Forecast Financial Impacts

An essential step in preparing for the new FLSA overtime rule is to accurately assess your employees’ current work hours. This analysis will provide a clear projection of your company’s anticipated costs under the updated salary exemption thresholds.

By understanding how many hours your employees typically work, you can better predict the potential overtime payments that might be necessary once the new salary levels take effect.

  • Work Hour Analysis

    Start by gathering comprehensive data on the number of hours each employee currently works, particularly those whose salaries are close to the new threshold. Consider both regular and overtime hours to get a full picture.

  • Financial Forecasting

    Use this information to simulate various scenarios based on the new salary thresholds. Estimate the additional costs if employees previously exempt become eligible for overtime pay.

  • Strategic Planning

    Based on these projections, evaluate whether your current payroll budget can accommodate these changes or if adjustments will be necessary. This may involve rethinking staffing levels, adjusting work schedules, or even redistributing tasks to manage the increased labor costs effectively.

This proactive approach not only helps in budget planning but also ensures you are prepared to make informed decisions about staffing and operations before the new FLSA overtime rule takes effect.

Planning ahead will mitigate the risk of sudden financial strain and help maintain operational continuity.

RELATED: Employee Travel & Overtime Pay - Ensuring FLSA Compliance >>

Optimizing Pay Structures for Cost Efficiency

Adjusting the pay structures of your employees can be a strategic move in response to the updated FLSA overtime rule. This is particularly relevant for employees who are currently exempt but frequently work beyond the standard 40-hour workweek.

If their salaries are near the new exemption threshold, it might be more financially prudent to slightly increase their salaries to maintain their exempt status rather than transitioning them to nonexempt status where they would be eligible for overtime pay.

  • Cost-Benefit Analysis

    Begin by evaluating the current salaries of your exempt employees against the new thresholds. For those close to the cutoff, calculate the cost of raising their salaries above the new exemption limit versus the potential overtime payments if they remain below the threshold and are reclassified as nonexempt.

  • Scenario Planning

    Consider how often these employees have historically worked overtime and project this into the future. This will help in assessing whether the increased salary expense will be offset by the avoidance of overtime payments.

  • Strategic Salary Adjustments

    If you decide that increasing salaries is the most cost-effective approach, plan these adjustments carefully. Ensure that any salary increases not only meet the new exemption thresholds but also align with your overall compensation strategy and budget.

This approach not only helps in managing costs effectively but also in retaining valued employees by recognizing their contribution and adjusting their compensation to reflect their roles and responsibilities.

Making these calculated decisions will allow you to maintain compliance with the new rules while managing payroll expenses strategically.

DOL Overtime Rule

Exploring Cost-Effective Alternatives to Overtime

In light of the updated FLSA overtime rules, finding alternative strategies to manage and control labor costs without relying heavily on overtime is crucial.

There are several approaches that can help your company maintain productivity while managing expenses:

  • Diversifying Staffing Options

    Assess the feasibility of hiring additional staff such as full-time, part-time, or temporary employees. This could distribute the workload more evenly and prevent your current staff from needing to work overtime.
  • Leveraging Freelancers

    Utilize freelancers for specific projects or during peak times. This approach can be particularly cost-effective as you pay only for the work needed without the ongoing costs associated with full-time employees.
  • Redistributing Work Hours

    Consider reallocating hours to employees who usually work less than 40 hours a week. This can help manage workload peaks without incurring overtime costs.
  • Adjusting Shift Assignments

    Shift work to those with lower overtime rates where feasible. This strategy can reduce the overall cost of overtime when extra hours are unavoidable.
  • Outsourcing and Automation

    Evaluate which tasks could be efficiently outsourced or automated. Outsourcing can be a viable option for non-core activities, while automation can reduce the need for manual labor in repetitive tasks.

RELATED: FLSA Rules and Employee Break Compensation >>

Prioritizing Pay Equity Under the New FLSA Overtime Rule

As your organization adapts to the new FLSA overtime rule, maintaining a commitment to pay equity and fair treatment is crucial. This approach not only aligns with legal compliance but also supports a positive and equitable workplace culture.

  • Comprehensive Impact Analysis

    Carefully assess how adjustments to comply with the new overtime regulations will affect all employees. Ensure that changes in pay structures and hours are applied uniformly and fairly across similar roles and responsibilities.

  • Focus on Pay Equity

    Ensure that your decisions reinforce pay equity principles. This means evaluating and adjusting pay scales so that all employees performing similar work under similar conditions are compensated equally, regardless of their overtime eligibility under the new FLSA overtime rule.

  • Transparent Communication

    Keep lines of communication open with your workforce regarding how decisions are made about pay and hours. Transparency helps build trust and can mitigate concerns about fairness among employees.

  • Review and Adjust

    Continuously monitor the outcomes of any changes made in response to the new FLSA overtime rule. Be prepared to make adjustments to address any unintended disparities and to further promote fairness and equity within your organization.

This focused approach will help ensure that your compliance with the new FLSA overtime rule also enhances your organization’s commitment to fair and equitable treatment of all employees.

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The upcoming change to the FLSA overtime rule necessitates prompt and strategic adjustments in how small and medium-sized businesses classify and compensate their employees. It's essential to start by evaluating how these changes will impact your business and to plan for the necessary adjustments well ahead of time. Being proactive will not only help ensure compliance but also maintain operational efficiency and workforce morale.

As a local, Kansas City, certified PEO with a team of experienced HR compliance experts, Axcet HR Solutions is perfectly positioned to guide you through these updates. We understand the unique challenges faced by businesses in our community and are equipped to offer tailored advice and solutions.

Schedule a consultation with Axcet HR Solutions today to ensure your business is fully prepared for the new overtime regulations. Let us help you transform this challenge into an opportunity for your business to thrive.

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