Notice to Employers: Final Overtime Rule Coming in April 2024

On August 30, 2023, the Department of Labor (DOL) announced an issuance of a Notice of Proposed Rulemaking, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees. This is in effort to update and revise the regulations issued under the Fair Labor Standards Act (FLSA) implementing the exemption from minimum wage and overtime pay requirements. Proposed revisions include increasing the standard salary threshold and the highly compensated employee total annual threshold.  

The DOL currently plans to finalize its overtime rule in April 2024. If approved, the rule will take effect 60 days after it is finalized, providing significantly less time than the 96 to 192-day windows it gave to employers during the previous three overtime rules.  

If the DOL sticks to its April deadline, the rule could take effect as soon as June 2024. Don’t panic yet employers because the DOL has often missed the deadlines it sets for itself in its regulatory agenda. 

Background of Overtime Rules and Classifications 

Unless exempt, employees covered by the Fair Labor Standards Act must receive overtime pay for hours worked over 40 in a workweek at a rate not less than time and one-half their regular rate of pay.  

Currently, to qualify for exemption, employees generally must be paid no less than $684 per week on a salary basis. These salary requirements do not apply to outside sales employees, teachers, and employees practicing law or medicine. 

Employer and HR Responsibilities to Know 

The salary exemption test is one of two main tests to determine an exempt or non-exempt status for an employee under the FLSA. Employees who are categorized as exempt are not eligible for overtime pay. Employees who are categorized as non-exempt are afforded overtime pay for hours worked over their 40-hour workweek. In addition to an employee passing the salary test, they also must pass the duties test which outlines certain job tasks an employee must perform to be exempt from overtime pay. It is crucial for both employers and HR professionals to understand the FLSA duties test so that employees are properly classified as exempt or non-exempt. Any employee can be non-exempt, but they must pass the duties test to be exempt.  

Misclassification can result in costly penalties from the US Department of Labor, even if the error was accidental. 

What Employers Can Do to Prepare 

Employers should prepare for the possibility that the overtime rule will be approved on time in 2024, especially with it being an election year. Employers should leverage the knowledge of their HR department to begin auditing employee classifications now to determine who may be affected by this ruling. If a company does not have an internal HR department, they should seek outsourced HR assistance to audit their current employee classifications.  

When approved, the overtime rule will increase the minimum annual salary for most exempt employees paid on a salary basis from $35,568 per year to around $55,068 per year; a cost that could be burdensome to many companies. If an exempt employee is paid less than the new minimum salary, the employer will have to increase the employee’s earnings to comply with federal law or reclassify them as non-exempt. Now is the time for employers to have a firm grip on the financial impact this ruling may have on their company.   

As a result, this ruling leaves very little solution to employers: increase salaries or pay overtime. If you have any questions on the ruling, or would like more information on how to prepare, please contact us at info@trewhr.com.

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