On April 23rd, the Department of Labor (DOL) published the final overtime rule update which updates overtime pay requirements under the Fair Labor Standards Act (FLSA). The new update significantly increases the minimum compensation threshold workers must fall under to receive overtime pay. Currently, eligible employees making under $684 per week ($35,568 annually) are entitled to overtime. Many in the Biden Administration believed this number was far too low to ensure fair compensation. Under the new rule, those making under $1,128 per week ($58,656 annually) will become eligible by 2025. It is estimated the update will impact as many as 4.3 million workers and will have a significant impact on U.S. employers. To help clients, prospects, and others, WhippleWood CPAs have summarized the key details below.
How does the Overtime Threshold Work?
It is included in the FSLA to ensure that most employees who work more than 40 hours per week get paid 1.5 times the regular rate for extra hours worked. Typically, almost every hourly worker is eligible because compensation does not exceed the minimum threshold. However, salaried workers are a different story completely. These employees are only entitled to overtime benefits if they earn below a salary or threshold. Once the threshold, which is currently $684 per week is surpassed, the worker is considered exempt from overtime pay protections. In other words, any additional time worked by the employee is not eligible for additional pay. There are certain exemptions based on job function.
New Overtime Rule Summary
As mentioned above, the minimum salary threshold will increase to $58,656 per year an increase of $23,088 over current levels. The increases will be phased-in starting on July 1st when the salary threshold will be $844 per week ($43,888 per year). The next increase becomes effective January 1, 2025, when the minimum threshold increases to $1,128 per week ($58,656 per year). It will automatically be adjusted starting on July 1, 2027, and every three years thereafter.
It is important to note there are certain exemptions for those employed in a bona fide executive, administrative, or professional capacity (as defined in 29 CFR part 51). To qualify for the exemption any employee must meet three tests, including:
- Be compensated as a salaried employee, meaning they are paid a pre-determined and fixed amount not subject to reduction due to quantity or quality or work performed.
- Be paid at least a specified weekly salary level.
- Primarily perform executive, administrative, or professional duties as defined in DOL regulations.
What Should Employers Do Now?
The DOL final overtime has already been challenged in court. However, it is impossible to predict how these legal challenges will impact or change the final rule. For this reason, it is important to review worker status to identify how you will be impacted. It may be necessary to reclassify some as non-exempt or increase salaries to avoid triggering the new requirement. Given the short timeline until the rule becomes effective, it is important to act quickly.
Contact Us
The new DOL overtime rule change is welcome news for many Colorado workers. However, it will likely present significant challenges to companies that may need to increase employee pay. If you have questions about the information outlined above, or need assistance with another tax or accounting issue, WhippleWood CPAs can help. For additional information call 303-989-7600 or click here to contact us. We look forward to speaking with you soon.