Final Overtime Rule: What Business Owners Need to Know

UPDATE: On November 15, 2024, a federal court struck down the Department of Labor’s (DOL’s) recently expanded overtime (OT) rule nationwide, stating that it is unlawful. With that, the higher salary threshold increase set to take effect on January 1, 2025 has been blocked and minimum salary thresholds are reverting back to those set in the 2019 regulation: $35,568 per year for Executive, Administrative, and Professional employees and $107,432 per year for highly compensated employees.

---

On April 23, 2024, the Department of Labor (DOL) issued a final overtime rule under the Fair Labor Standards Act (FLSA), raising the minimum salary threshold for white-collar exemptions under federal law. This means more of your workers may qualify for overtime pay.

Here are the key takeaways of the final rule:

• On Jul. 1, 2024, the salary level at which salaried employees are exempt from overtime will rise from the current $684 per week ($35,568 per year) to $844 per week, which is the equivalent of $43,888 per year.
• On Jan. 1, 2025, the salary level at which employees are exempt from overtime will increase to $1,128 per week, which is equivalent to $58,656 per year.
• For highly compensated employees, the salary threshold will increase from $107, 432 annually to $132,964 on Jul 1, 2024, and $151,164 on Jan. 1, 2025.
• The rule includes a three-year automatic adjustment for updating the salary thresholds.

What does the new federal overtime rule mean for employers?

If you have an employee who is classified as salary exempt and making under $43,888 per year (by July 1, 2024) or $58,656 per year (by January 1, 2025), you will be required to reclassify that employee as non-exempt and compensate that employee at time-and-a-half overtime pay for any hours worked in excess of 40 hours a week.

In addition, Governor Josh Green signed a bill into law amending Hawaii’s Wage and Hour Law to increase the minimum monthly salary an employee must earn under the “guaranteed monthly salary” exemption from $2,000 to $4,000, effective June 21, 2024.

Unlike FLSA, Hawaii’s “catchall” exemption is not based on job duties.  Instead, as long as an employee is paid at least $4,000 per month, that employee is exempt from Hawaii’s laws on minimum wage and overtime.

Many Hawaii employers are covered by both federal and state law. FLSA provides minimum standards and does not preempt a state from establishing higher standards to classify an employee as exempt and not entitled to overtime compensation. Therefore, Hawaii’s catchall exemption only affects employees who are not covered under FLSA and do not meet any other exemption listed in HRS §387-1.

How to comply with the new federal and state overtime rules

If your business has a significant number of employees affected by the overtime rule change, there are no easy solutions. Some employers may have already instituted wide-reaching operational changes in efforts to accommodate the new rules back in 2019.

This may have included increasing salaries, shifting workers to hourly status, or even laying off employees to meet cost constraints.

There are some options worth considering as you evaluate how to remain compliant with the new DOL overtime rules. If you currently have exempt employees who fall under the federal and/or state minimum salary thresholds, it would be prudent to review their situations and assess whether pay needs to be increased to maintain exempt status.

Raise workers’ salaries above the new threshold

If you have employees consistently working beyond 40 hours a week and these employees are already being compensated at or near the salary threshold, it might be worth considering raising salaries above the new threshold. However, remember that employees’ duties must still satisfy the duties test as required by the FLSA. In the event of a DOL audit, a current job description will assist in providing documentation to support the exemption.

If it is not within your budget to increase salaries, it will be necessary to reclassify your salary exempt positions to non-exempt.

Pay overtime as necessary

If your employees typically work 40 hours a week and are only occasionally or seasonally required to work overtime, it might be advantageous to reclassify them as non-exempt. In this scenario, you would budget for overtime instead of raising yearly salaries above the threshold.

If you do reclassify employees as non-exempt, provide detailed training for newly reclassified employees and their managers. Prepare to train them on keeping track of their hours, including breaks and other company policies that differ for exempt and non-exempt employees.

Limit workers’ hours to 40 hours a week

If possible, redistribute workloads to ensure that non-exempt employees remain within a 40-hour work week. This might be the most cost-effective way of handling the new regulations.

Hire temporary workers

In limiting your non-exempt employees to a 40-hour work week, you may find the need for the occasional temporary worker to meet business demands. Hiring temporary workers can be more cost-effective than raising salaries across the board or paying overtime.

Prepare for communication to affected employees

There are employees who tie professional esteem to being salary exempt. If you determine that paying on an hourly non-exempt basis is more cost-effective for your business, be sensitive to the affected employees when communicating the changes.  Even if there is no change to their income or duties, they may perceive their now non-exempt position to have less professional status.

In Hawaii’s particularly tight labor market, effectively disseminating information to your workforce is important to ensure your employees don’t feel slighted as your business moves to ensure compliance with new regulations.

Penalties for non-compliance under the FLSA

Penalties and sanctions for non-compliance with the FLSA are severe and aren’t a risk worth taking. In addition to the back payment of lost wages to all affected employees, willful violators may be prosecuted criminally and fined up to $10,000. Employers with repeated violations may be subject to fines of $1,100 per incident. A second conviction of violating the FLSA can even result in imprisonment.

We know how difficult it can be to maintain compliance and keep up with ever-changing human resources laws and regulations. That’s where our team of HR experts can help. We monitor federal and state updates to the laws and notify affected employers with the necessary information to keep their businesses compliant. To learn more about how we can help your business, contact us.

This article is for informational purposes only and does not constitute legal advice. Readers should first consult their attorney, accountant or adviser before acting upon any information in this article.