Is Your Business Ready for the 2024 Overtime Rule Changes? Here's What You Must Do Now!

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Dear Attorney Bob,

I’ve been hearing about changes to the U.S. Department of Labor’s new overtime exemption rules for 2024, and I’m concerned about how these changes will affect our business, especially our salaried employees. What do we need to know, and how do we stay compliant with the new regulations?
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Sincerely,
Preparing in Pewaukee

Dear Preparing in Pewaukee,

The Department of Labor (DOL) has made significant changes to the overtime exemption rules, which will impact millions of employers across the U.S. beginning in 2024. It’s great that you’re looking ahead to ensure your business stays compliant, but if you are just starting to look now, you may already be behind! The changes primarily affect which employees can be classified as exempt from overtime pay requirements under the Fair Labor Standards Act (FLSA).

Here’s a breakdown of the key points you need to know:

​What Are the 2024 Changes?

On April 23, 2024, the DOL issued a final rule that raises the salary threshold for employees to qualify as exempt from overtime pay under the FLSA. This rule applies to employees classified as executive, administrative, professional, and highly compensated employees. Let’s break this down:

1. For salaried employees classified as administrative, executive, or professional (the “white-collar” exemptions):
   • Current threshold: $684 per week (or $35,568 per year).
   • New threshold as of July 1, 2024: $844 per week (or $43,888 per year).
   • New threshold as of January 1, 2025: $1,128 per week (or $58,656 per year).
     
     
2. For highly compensated employees:
   1. Current threshold: $107,432 per year.
   2. New threshold as of July 1, 2024: $132,964 per year.
   3. New threshold as of January 1, 2025: $151,164 per year.

After 2025, the DOL will also implement automatic updates to the salary thresholds every three years, starting in 2027.

Who Does This Impact?

The biggest impact will be on salaried employees who are currently classified as exempt but whose earnings fall below the new thresholds. If you have employees in that category, you will need to take action.

What Are Your Options as an Employer?

Once you’ve identified which employees are affected by these changes, you have two primary options:

1. Raise Salaries: If an employee’s salary is below the new threshold but they meet the duties test for exemption, you could increase their salary to meet or exceed the new threshold. This will allow you to keep them as exempt from overtime.
   
   
2. Reclassify as Non-Exempt: Alternatively, you could convert employees whose salaries fall below the new threshold to non-exempt status. These employees would then be eligible for overtime pay (1.5 times their regular rate) for any hours worked over 40 in a workweek.

Each option comes with its own costs and benefits. For example, raising salaries might be a more predictable expense, while reclassifying employees as non-exempt could lead to fluctuations in payroll costs depending on the number of overtime hours worked. There are other options to consider as well, but these are the primary options most employers are using.

Conducting a Compliance Audit

To ensure you comply with the new rule, it’s essential to conduct a thorough audit of your salaried employees' wages and job duties. Here’s how to approach it:

1. Review Salaries: Identify all salaried employees and compare their current salaries to the new thresholds. Use this Exemption Worksheet to help determine whether an employee meets the salary and duties requirements for exemption.
   
   
2. Review Job Duties: Salary is only one part of the equation. An employee must also meet specific job duties tests to qualify for an exemption. The exemption categories include executive, administrative, professional, outside sales, and computer-related professionals. Use the worksheet to ensure the employee’s primary job duties meet the necessary requirements for exemption.
   
   
3. Make Adjustments: Based on your audit, decide whether to raise salaries or reclassify employees as non-exempt. You may find some job descriptions need to be revised to better reflect actual job duties and stay compliant with the law. Be sure to communicate any changes clearly to affected employees.

What Happens If You Don’t Comply?

Failing to comply with these new rules can result in costly wage and hour violations. Employees who are misclassified as exempt but earn less than the new threshold could be entitled to back pay for overtime, plus penalties. These claims typically hit employers as a class or collective action, which are very costly to defend or pay.

Final Thoughts

Preparing in Pewaukee, you are not alone to be concerned and right to prepare. These new rules require immediate attention to ensure your business remains compliant. I recommend you start the process now by reviewing your employees’ salaries and job duties, using this Exemption Worksheet as a guide. If you have any questions or need help navigating the complexities of the new overtime rules, feel free to reach out to me at NextGen Legal. We’re here to make sure your business stays ahead of the curve.

Warm regards,
Attorney Bob

View the Exemption Worksheet

P.S. Have more questions about FLSA overtime rules or employee classification? Contact us at NextGen Legal for tailored guidance to keep your business compliant!

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About Attorney Bob

Bob Sanders is an Attorney and the founder of NextGen Legal. After spending over a decade in BigLaw, working with clients of all sizes across the US, he became acutely aware of the recurring barriers that deterred businesses from seeking proactive legal advice: shrinking legal budgets competing with escalating fees. This realization spurred Bob to create NextGen Legal, a firm designed to eliminate these barriers and provide clients with the high-quality legal advice they need, exactly when they need it. 

At NextGen Legal, we're transforming the traditional law firm model. Bob’s extensive experience in labor and employment law has been instrumental in shaping a service that offers both day-to-day legal counsel and rapid response for emergent issues. We strive to empower our clients with the knowledge and strategies necessary to navigate the legal landscape effectively and make confident employment decisions, without the fear of unexpected costs.
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Rated a Rising Star by SuperLawyers (an accolade reserved for only 2.5% of attorneys in Wisconsin), Bob provides strategic legal advice and counsel to companies of all sizes, helping business leaders make confident, informed decisions. His expertise spans employment law, regulatory compliance, litigation, safety, corporate strategy, and risk mitigation. Bob excels in transforming complex legal challenges into clear, actionable business solutions, offering strategic guidance to leadership teams.

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