New overtime rules are now in effect. Here’s what you need to know about the new rules and how to make sure your business is in compliance.
Background
A few large businesses were moving hourly workers to salaried employees and then requiring these employees to work in excess of 40 hours per week to avoid paying overtime. In an effort to control this practice, new laws are now in place requiring overtime for employees who earn below a significantly increased threshold. Prior to July 2023, this salary threshold for overtime was $35,568 ($684 a week). The threshold is now $43,888 ($844 a week) as of July 1, 2024. The threshold will increase again to $58,656 ( $1,128 a week of January 1, 2025.)
The overtime-exempt salary threshold will then be automatically updated every three years.
Being in compliance
If you haven’t already done so, consider these steps to ensure that your business is in compliance with the new overtime salary rules.
Step 1: Identify Affected Employees
Look through your current payroll and identify employees who earn a salary of $43,888 or less.
Step 2: Determine How to Classify These Identified Employees.
For the employees you identify in Step 1, conduct an analysis to determine whether each of these employees is now eligible for overtime. If so, you have a few choices:
- you can bump up their pay to avoid paying overtime to that employee
- reclassify the employee to hourly and pay overtime as they clock enough hours
- or have them keep time sheets and then pay overtime when their hours exceed the overtime requirements
STEP 3 Update your Payroll System
Team up with the Gleason Tax Advisory Payroll System to ensure your payroll system is up to date to reflect any changes to an employee’s overtime status. This includes updates to any official paperwork or documents.
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STEP 4: Talk to your Employees.
The Society for Human Resource Management suggests developing a communication plan to announce the changes to employees that are covered under this law change. An employee whose salary is increased to the new exempt threshold may be excited by the pay bump until discovering they’re no longer eligible for overtime pay. Similarly, an employee who is reclassified from exempted (salaried) to non-exempt (often paid hourly) may view the change as a demotion, even if their overall annual pay remains the same. This change is a long-delayed proposal that was hung in legislative and legal challenges and is now being made into law. Now is the time to review and make any necessary adjustments.