Employers: Prepare for FLSA Overtime Law Updates

Major changes in federal overtime rules are continuing, affecting millions of employees and their employers. Updated salary requirements for overtime exemptions started in July and there’s another significant increase starting in January.

Understanding the Fair Labor Standards Act (FLSA) updates can help your organization facilitate compliance, plan for necessary increases, and put a communication plan in place in preparation of the changes ahead.

Impact of FLSA overtime law changes

Employers were already impacted earlier this year when the U.S. Department of Labor (DOL) released a final rule on overtime exemptions effective July 1, 2024, raising the minimum salary to $844 per week for executive, administrative, and professional (EAP) employees. On January 1, 2025, employers will be impacted again when the minimum salary threshold for EAP workers will increase to $1,128 per week ($58,656 per year) and the threshold salary for highly compensated employees (HCEs) will increase to $151,164 per year. 

Early planning allows employers to budget for potential increases in labor costs, and complying with the new regulations may help avoid penalties, fines, and legal disputes.

Review employee classifications

Now is the perfect time for employers to review and update their job descriptions to accurately reflect the duties and responsibilities of each position — and verify each position is correctly classified based on FLSA guidance and/or other applicable criteria (state and local laws).

The DOL has published fact sheets outlining requirements for overtime exemptions. To be eligible for overtime exemptions, the job and employee must pass a series of tests:

Salary basis test

The employee must be paid a predetermined, fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed.

Salary level test

The amount of salary paid must meet the minimum required weekly salary of $1,128 per week (effective January 1, 2025).

Job duties test

The employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the DOL in the Fact Sheets.

Keep in mind that paying an employee a salary of more than $1,128 per week does not automatically qualify them as exempt. They must pass all three tests to be eligible for exemption from overtime.

Engage professional advice

Reading the DOL fact sheets may feel like reading a foreign language, but employers don’t have to figure it out alone. Skilled professionals with deep knowledge of employment law and compensation compliance go through specialized training to understand the labor regulations governing these areas.

If a job fails the job duties test and the employer determines changes should be made to align an employee’s classification, a compensation professional can assist with calculating a new hourly rate focused on accurate, fair rates for the employee — while keeping the employer’s bottom-line in mind.

Prepare management, HR, and employees

Once the employers are educated on the new law and are aware of any recommended adjustments, managers, human resources (HR), and employees should be educated on how to navigate the changes.

• Management — Develop a communication plan that includes manager training, changes in capturing time and attendance, how determinations were made, and why compliance is important.
• HR — Train HR team members on the new law, update the employee handbook, and communicate when the changes should take place.
• Employees — Schedule one-on-one discussions with impacted employees and their managers to walk through why the change is occurring, when their change will be effective, provide training on any new time and attendance guidelines, and share who to reach out to for support.

Timing

If an employer has decided to make changes after a review, a rollout based on the following criteria could be helpful:

1. For changes in type of employee pay (e.g., salary to hourly) due to a failed job duties test, implement changes as soon as possible for compliance purposes since the job was previously misclassified as exempt.

2. For changes in salary level for bona fide exempt EAP jobs due to the threshold increase, prepare for the effective date as if it will go into effect on time, but you may want to hold off on making any adjustments until closer to the effective date of the law (the law could get challenged in the courts at the last minute).

How CLA can help you comply with FLSA overtime rules

Navigating the updates can be challenging for employers who may not have professionals on their team with the knowledge or training specific to FLSA requirements. CLA’s Talent Solutions team can help with job assessments, FLSA exemption testing, compensation calculations, and more.

Contact us

We can help your organization make informed decisions to stay compliant with the new FLSA overtime law requirements. Complete the form below to connect with CLA.