Navigating Overtime Rule Changes in 2024: Exemptions, Thresholds, and Employee Pay

by Chris Way

Everyone LOVES payday! There is probably no more universal sentiment under the sun. Under a new proposed rulemaking, payday might be getting a little sweeter for salaried employees, and now is a good time for employers to take note and plan accordingly.

The Proposed Overtime Rule Change for Salaried Employees

The US Department of Labor has issued a notice of proposed rulemaking that may update the Overtime Rule. As a quick refresher, many salaried employees generally are exempt from overtime compensation rules issued under the Fair Labor Standards Act. Currently, an employee is exempt if the employee earns at least $684 per week in salary AND performs qualifying work activities. That capitalized “AND” is crucial. Put a pin in it for now, and we’ll circle back. The rule would increase the annual salary threshold from $35,568 per year to $55,068. This means that the required salary for exemption from overtime will increase from $684 per week to $1,059.

To prepare for this potential change and its implications, let’s dive into this and how you can position your business to be in the strongest position regardless of what the final outcome of this proposed rule is.

What’s Needed for an Employee to be Exempt from Overtime Pay?

Circling back! I cannot stress enough, to be exempt an employee must meet both prongs of the exemption test. Simply earning more than $684 per week, or $1,059 if the rule becomes final, is not enough. The employee must meet the numerical threshold AND perform qualifying work activities. The FLSA exemption rules provide for six exemptions based on qualifying work activities.

  1. The Administrative Exemption for activities that assist management or business operations;
  2. The Computer Employee Exemption for activities involving programming or other technical work related to software or hardware design;
  3. The Executive Exemption for management activities;
  4. The Highly Compensated Employee Exemption for your team members earning $107,432 or more ($684 per week of which must be salary);
  5. The Outside Sales Exemption for sales activities away from the company’s offices; and
  6. The Professional Exemption for activities requiring advanced knowledge and usually, but not always, indicated by a need for specialized degrees or instruction.

How Can an Employer Position Itself for Success if the Rule Change Becomes Final?

As we move closer to this Overtime Rule update becoming law, and understanding the qualifying work activities, you can start evaluating your business and how to position yourself if this change becomes law. I suggest three simple steps:

Step 1- Determine if the rule affects you.

If you don’t have any salaried employees, have a workforce that doesn’t do the type of work covered by the exemptions (for example, your team is all trade professionals), or you already pay more than $55,068 per year in salary, well then you can stop reading here! Of course, you’re welcome to continue. Maybe you just like the way I write? Maybe you enjoy being a part of the legal cultural zeitgeist? Maybe you’re planning for a future where you may have team members this change would affect? In any event, read away.

Step 2- If affected, evaluate who among your salaried workforce works more than 40 hours per week and why.

Remember, this rule change is about adding overtime pay for salaried workers making less than a specified salary. Overtime affects employees working more than 40 hours per week. So if you want to avoid application of the rule, your objective is to keep your team working less than 40 hours per week. Identify which roles in your team are working more than 40 hours per week and consider why. You may find that the additional time spent isn’t necessary but is instead related to some inefficiency.

Every month various inefficiencies cost all of our businesses a lot of time. Now is a great time to evaluate whether your team is using their time optimally, and what you can do to help them be more efficient. Streamlined systems, new processes, additional training, improved technology, or simply a different approach to delegation can all help maximize your efficiency and reduce the number of overtime hours your team needs to work.

Step 3- If your team is already operating at maximum efficiency and this rule could hurt your ability to operate, then it’s time for more detailed planning.

At this level there may be some changes to consider to help your business model withstand this regulatory change. Change the expenses and you change the margins. Impacting your margins impacts everything. If you find yourself here, it’s critical to begin planning change in your business model before the rule changes it for you. You don’t need to implement changes right away as the rule is not final. But it’s better to begin planning before the need and any fixed deadline arise.

Regulatory changes are a constant as laws evolve to face different priorities and challenges. But with a bit of planning and insight, these changes don’t have to throw us off our game. No matter which step of this process you find yourself in, the Way Law team is here to help!