What Employers Need to Know: New FLSA Overtime Rules

By Garrett Murphy, CPA

The U.S. Department of Labor (DOL) has issued new Fair Labor Standards Act (FLSA) regulations, significantly raising salary thresholds for overtime eligibility. An estimated 3 million workers who were previously exempt will now be eligible for overtime. This major shift begins on July 1, 2024, with further adjustments on January 1, 2025.

Impacted Employees

The new regulations primarily impact employees who were previously classified as exempt under the EAP (executive, administrative, and professional) categories but earned below the new salary thresholds.

Highly compensated employees, typically those in C-suite or senior management roles, who earned below the updated thresholds will also be affected.

EAP employee overtime thresholds

• Current threshold: $684 per week ($35,568 per year)
• Starting July 1, 2024: $844 per week ($43,888 per year)
• Beginning January 1, 2025: $1,128 per week ($58,656 per year)
• July 1, 2027, and every three years thereafter: DOL will determine if new thresholds are needed.

Highly compensated employee thresholds

• Current threshold: $107,432 per year
• Starting July 1, 2024: $132,964 per year
• Beginning January 1, 2025: $151,164 per year
• July 1, 2027, and every three years thereafter: DOL will determine if new thresholds are needed.

For example, before the new regulations, Jane, a marketing manager, earned $700 per week, which amounted to $36,400 per year. Under the current threshold of $684 per week, Jane was classified as an exempt employee and was not eligible for overtime pay. This meant that when Jane worked 50 hours a week, she received no additional pay beyond her salary.

After the new regulations take effect on July 1, 2024, Jane's weekly salary of $700 will fall below the new threshold of $844 per week. As a result, Jane will be reclassified as a non-exempt employee and will become eligible for overtime pay. If her salary remains unchanged, Jane will now receive overtime pay (time and a half) for the extra 10 hours worked each week.

How the Changes Impact Your Business

• Financial Implications: The increased salary thresholds mean employers may face higher payroll costs. To manage these costs, employers need review the classification of employees and decide whether to raise salaries to maintain exempt status or reclassify employees as non-exempt and pay overtime.
• Compliance Risks: Failing to adhere to the new regulations could result in legal challenges, fines, and penalties. Staying compliant is crucial to avoid these risks.
• Employee Morale and Retention: Transparent communication and fair compensation practices can enhance employee morale and retention.
• Operational Adjustments: Employers may need to adjust work schedules, timekeeping practices, and overtime policies to ensure efficient operations and compliance with the new rules.

Moving Forward

The DOL’s overtime changes mark a significant shift in wage and hour law, requiring careful planning and execution by employers. Additionally, the DOL expects to update the overtime policy every three years, meaning thresholds will likely continue to change.

By taking a proactive stance, employers can ensure they remain compliant and continue to support their workforce effectively. The Boyer & Ritter team is ready to help answer any questions or provide clarification.

Garrett Murphy, CPA, is a Tax Manager at Boyer & Ritter and provides tax compliance and advisory services to businesses and individuals. Reach Garrett at 717-761-7210 or gmurphy@cpabr.com.