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As a full-service accounting firm serving clients throughout West Texas, Bennett, Bennett & Trice is dedicated to keeping local businesses informed about significant changes in labor laws. The Department of Labor’s new overtime regulation, set to take effect on July 1, 2024, will have a considerable impact on businesses and their employees. Here’s what you need to know to stay compliant and manage your workforce effectively.

The Importance of Overtime Protections

Since its establishment in 1938, the Fair Labor Standards Act (FLSA) has included overtime protections to ensure that workers are compensated fairly for their time. These protections have been crucial in preventing worker exploitation and in supporting the well-being of families and communities. Strong overtime protections contribute to building America’s middle class and help ensure that employees are not overworked and underpaid.

Who is Exempt from Overtime Pay?

Certain employees are exempt from the FLSA’s minimum wage and overtime protections, including bona fide executive, administrative, or professional employees. This “EAP” exemption applies when:

  1. An employee is paid a salary,
  2. The salary meets a minimum threshold amount, and
  3. The employee primarily performs executive, administrative, or professional duties.

Historical Context and Need for Change

Between 1938 and 1975, the Department of Labor periodically increased the minimum salary required for the EAP exemption. However, long intervals without increases after 1975 eroded the real value of the salary threshold, diminishing its effectiveness in identifying exempt EAP employees.

Development of the New Overtime Rule

The new overtime rule was shaped by input from nearly 30 listening sessions across the country and over 33,000 written comments from the public. This collaborative approach ensured that the rule addresses the needs and concerns of both workers and employers.

Key Changes Under the New Overtime Rule

The new rule, effective July 1, 2024, will increase the standard salary level that determines which salaried workers are entitled to overtime pay protections under the FLSA.

Overtime Eligibility Updates

  • Currently: Most salaried workers earning less than $684/week are eligible for overtime pay.
  • Starting July 1, 2024: Most salaried workers earning less than $844/week will be eligible for overtime pay.
  • Starting January 1, 2025: Most salaried workers earning less than $1,128/week will be eligible for overtime pay.
  • Starting July 1, 2027: Eligibility thresholds will be updated every three years, based on current wage data.

Changes for Highly Compensated Employees

The rule also increases the total annual compensation requirement for highly compensated employees (who are not entitled to overtime pay under the FLSA if certain requirements are met):

  • July 1, 2024: Increase from $107,432 to $132,964 per year.
  • January 1, 2025: Increase to $151,164 per year.
  • July 1, 2027: Earnings thresholds will be updated every three years to keep pace with changes in worker salaries.

How This Impacts Your Business

For business owners, these changes mean it’s crucial to review and possibly adjust your payroll practices. Here are a few steps to consider:

  1. Evaluate Current Salaries: Review the salaries of your employees to determine who will be newly eligible for overtime pay.
  2. Adjust Budgets: Plan for potential increases in payroll expenses starting in July 2024 and January 2025.
  3. Update Payroll Systems: Ensure your payroll systems are updated to handle the new thresholds and regulations.
  4. Communicate Changes: Inform your employees about the changes and how they may affect their compensation.

Ensuring Compliance and Fair Compensation

The new overtime rule aims to restore and extend the right to overtime pay to many salaried workers, including those who historically were entitled to overtime pay due to their lower pay or the type of work they performed. Staying informed and compliant with these changes is crucial for maintaining a fair and legal workplace.

We encourage all business owners to visit the Department of Labor website for more detailed information about the final rule.

Bennett, Bennett & Trice is here to help you navigate these changes. If you have any questions or need assistance in updating your payroll practices, please don’t hesitate to contact us. We are committed to supporting your business through every regulatory update.