May 27, 2024

Understanding the New DOL Overtime Rules: What Your Company Needs to Know

The US Department of Labor (DOL) has recently announced new overtime rules that could significantly impact how your company compensates its employees. The final rule, set to take effect on July 1, 2024, increases the standard salary level used to determine which salaried workers are entitled to overtime pay protections under the Fair Labor Standards Act (FLSA).

Key Changes and Dates

Starting July 1, 2024, most salaried workers earning less than $844 per week will become eligible for overtime pay. Additionally, beginning January 1, 2025, the threshold will increase, and most salaried workers making less than $1,128 per week will be eligible for overtime pay. Despite these changes, job duties will continue to play a crucial role in determining overtime exemption status for most salaried employees.

Criteria for Overtime Exemption

To qualify for overtime exemption, an employee must meet three specific tests:

  1. Salary Basis Test: The employee must be paid a predetermined and fixed salary that is not subject to reduction based on variations in work quality or quantity.
  2. Salary Level Test: The employee must be paid at least the specified weekly salary level.
  3. Duties Test: The employee must primarily perform executive, administrative, or professional duties as outlined in the DOL’s regulations. Here are some general guidelines for these duties.
  • Executive Exemption:
    • Primary Duty: Managing the enterprise or a department/subdivision.
    • Supervision: Regularly directs the work of at least two employees.
    • Authority: Has the authority to hire or fire, or their recommendations are given particular weight.
  • Administrative Exemption:
    • Primary Duty: Performing office or non-manual work directly related to management or general business operations.
    • Judgment: Exercising discretion and independent judgment on significant matters.
  • Professional Exemption
    • Primary Duty: Work requiring advanced knowledge in a field of science or learning, acquired by prolonged, specialized instruction.
    • Specialized Fields: Includes teaching, computer analytics, and engineering.

Practical Suggestions

Given these upcoming changes, here are some practical suggestions for navigating this transition:

  • Monitor DOL for further potential changes: It’s advisable to wait until closer to July 1, 2024, before making any adjustments. In the past, the DOL has amended rules at the last minute, causing companies to reverse implemented changes.
  • Communication with Employees: If the rule goes into effect as planned, here’s a sample conversation to have with affected employees: "Your salary has always included your standard hours plus a certain number of overtime hours. With the new DOL rule, we will move to an hourly model at a rate of $XX.XX. Starting July 1, your payroll will adjust to hourly pay with overtime. We will monitor payroll and hours and address any shortfalls during the first year to ensure no one is adversely affected by this change."
  • Clarify the Intent: Emphasize that the goal is not to reduce pay but to adjust operating procedures to comply with new DOL rules. Ensure employees understand that overtime was already factored into their salary (if that was the case), and now it’s simply being itemized.
  • Tools and Tracking:
    • Determine appropriate hourly rates.
    • Utilize timesheets available through payroll services or simple Excel spreadsheets.
    • Consider requiring all employees to track their hours to ensure fairness and transparency.
  • Overtime Approval and Time Tracking: Make it clear that overtime should be approved in advance. Discuss policies regarding travel time and conference attendance, for instance, to ensure consistent time tracking.
  • Monitoring and Adjustments: Pay close attention to the first year’s hours. If an employee's new hourly pay falls short of their previous salary, consider making up the difference with a bonus or adjustment at year-end.
  • Highlight the Benefits: Some employees may feel like they were working overtime and it was ‘unpaid’ within their salary and/or bonus structure. This overtime change can assist in making the overtime more transparent and give the employee adequate pay to match their hours. Additionally, this can allow for the ability for a employee to take unpaid time if they’ve exhausted their vacation and/or sick leave benefits.
  • Research and Advice: As with any change, make sure to review the rule updates and determine how they will specifically affect your employees and company. Consider seeking legal advice and reviewing your policies and procedures to make sure your company is prepared for the changes.

By carefully planning and communicating these changes, your company can smoothly transition to the new DOL overtime rules while maintaining employee trust and satisfaction.

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