Business team meeting in office,
Business team meeting in office,

New overtime rules for 2024 impact small businesses

The Department of Labor (DOL) recently announced a final rule that will significantly raise the salary thresholds for overtime eligibility under the Fair Labor Standards Act (FLSA).

Effective July 1, 2024, the minimum salary threshold for executive, administrative, and professional (EAP) exemptions will increase to $844 per week (or $43,888 per year), with a further increase to $1,128 per week (or $58,656 per year) starting January 1, 2025.

Additionally, the threshold for highly compensated employees will rise to $132,964 annually in July 2024 and to $151,164 in January 2025. These thresholds will be subject to automatic increases every three years thereafter.

Implications for small businesses

Small businesses may face significant challenges due to these changes:

  1. Increased payroll costs: The new rule will expand overtime eligibility to more workers, potentially increasing payroll costs for small businesses already operating on thin margins.
  2. Administrative burden: Small businesses will need to reassess their payroll structures, possibly reclassifying employees or adjusting salaries to comply with the new thresholds. This process can be time-consuming and complex, especially for businesses without an internal HR role.
  3. Legal and compliance risks: Failure to comply with the new rule could result in legal challenges and penalties. Small businesses must stay informed and prepared for potential audits or lawsuits related to overtime pay compliance.

Strategic considerations for new overtime rules in 2024

To navigate these changes effectively, small businesses should consider the following steps:

  • Review and adjust salaries: Identify employees who may be impacted by the new thresholds and adjust their salaries accordingly to maintain exemption status. Alternatively, prepare to pay these employees overtime for any hours worked over 40 per week.
  • Check your payroll system: Invest in robust payroll and time-tracking systems to ensure accurate recording of hours worked and proper calculation of overtime pay. Now may be a good time to switch to a cloud-based system for payroll.
  • Seek professional guidance: Consult with HR or legal professionals, as well as your financial advisor to develop a strategy that complies with the new rule while minimizing financial strain. Change may include restructuring job duties or exploring alternative staffing models.

Legal challenges and uncertainty related to new 2024 overtime rule

The new overtime rule is already facing legal challenges. Several business and industry groups have filed lawsuits arguing that the DOL exceeded its statutory authority under the FLSA.

These groups contend that the significant increase in the salary threshold does not align with congressional intent and imposes undue burdens on businesses. Historically, similar challenges have resulted in modifications or delays to overtime regulations, as seen with the Obama-era rule in 2016.

Despite these challenges, businesses should prepare for the rule to take effect as scheduled while staying updated on the legal proceedings that could influence its implementation. Monitoring developments and maintaining flexibility in business planning will be crucial in adapting to these regulatory changes. By proactively addressing these changes, small businesses can mitigate risks and ensure compliance, ultimately safeguarding their operations and workforce. If you have any questions, contact us to schedule a call.

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