By Trüpp

The U.S. Department of Labor (DOL) has announced a significant update to the Fair Labor Standards Act (FLSA) overtime rule, which raises the minimum salary level for exempt employees to $43,888, effective July 1, 2024, and increases it to $58,656 on January 1, 2025. By January of 2025, this will be a 64.9% raise from the current $35,568 threshold! Learn more about the new overtime protections in this article. This two-phased approach will require employers to conduct a thorough analysis to determine how best to comply and manage internal pay equity. Here are three crucial steps employers should take now to assess the impact of the new overtime salary threshold and ensure compliance.

1. Conduct an FLSA audit

An FLSA audit is an essential first step in complying with the new overtime rule. FLSA audits help identify issues or gaps that need to be addressed to minimize risks and ensure compliance.

Update job descriptions
It is best practice to regularly ensure all job descriptions are current and accurately reflect the duties performed. This sets the stage for ensuring employees are classified correctly under FLSA standards.

Review employee classifications and evaluate exempt status
With the increased overtime salary threshold, it is vital to reassess how employees are classified. This involves a thorough review of job duties and compensation levels. Employee classifications are determined by how employees are paid, how much they are paid, and the type of work they perform, as determined by FLSA duties tests. Ensure overtime-exempt employees are salaried and satisfy the new minimum salary threshold.

In addition to federal FLSA requirements, some states have additional provisions that must be considered for job classification and compensation.

2. Review salary ranges and compensation strategies

The new salary threshold requires a thorough review of your current salary ranges and compensation strategies to ensure accurate employee classification and an up-to-date compensation plan.

Identify affected employees and make adjustments
Identify affected employees. Employers have the option to increase salaries to meet the new thresholds or reclassify as hourly non-exempt employees based on the new salary level. This may involve across-the-board raises or targeted adjustments for specific roles.

Consider overtime costs
If employees are reclassified as non-exempt, they will be eligible for overtime pay. Assess how much overtime would be required and the potential cost implications for the organization.

Manage workloads and hours
To control costs, consider adjusting employees’ hours or redistributing workloads. This could include reducing overtime hours, reallocating tasks, or hiring additional staff to balance the workload.

Consider the ripple effect
Assess how this will affect pay equity and compression regarding other employees’ compensation and the organization’s compensation strategy overall.

Revise compensation structures
Review and revise your compensation structure, including salary bands and incentive/bonus programs, to ensure they align with the new salary thresholds and maintain internal equity.

3. Plan for future increases

The salary threshold will increase again on January 1, 2025, to $58,656 and will continue to increase automatically every three years. It’s important to plan for these future changes now.

Determine phased or immediate compliance
Decide whether to implement the full salary increase immediately or in phases according to the new rule. This decision should be based on the organization’s financial capacity and strategic priorities.

Budget and financial planning
Factor the increased labor costs into your budget and financial planning. This involves forecasting higher payroll expenses and identifying opportunities to enhance efficiency and productivity.

Prepare for long-term adjustments
Develop a long-term strategy to manage ongoing increases in salary thresholds. This should include continuous evaluation of job roles, responsibilities, and compensation planning to ensure compliance and maintain competitiveness.

The upcoming changes to the overtime salary threshold under the FLSA require employers to carefully assess the impact on their organization and implement strategic measures to ensure compliance and maintain internal equity. By conducting a thorough FLSA audit, reviewing salary ranges, updating your compensation structure, and planning for future increases, employers can mitigate risks and manage the financial implications effectively.

If you need assistance, Trüpp’s team of professional consultants can provide expert recommendations that balance compliance, retention strategies, and budgetary constraints with your organization’s unique business objectives.

Concerned about FLSA compliance?