Overtime Rule: Next Steps for Employers

The overtime rule taking effect soon is a golden opportunity to update job classifications for which needed changes haven’t been made in a while.

Take steps now to align with the rule, said Kevin Young, an attorney with Seyfarth in Atlanta, during the SHRM webinar “Understanding the U.S. Department of Labor’s New Overtime Pay Regulations.” Don’t wait for the outcome of litigation challenging the rule, because courts can be unpredictable about how they will act, he said.

The rule’s increased salary thresholds for white-collar exemptions are set to take effect in two phases: first, the threshold rises to $844 a week ($43,888 per year) on July 1, then it increases to $1,128 a week ($58,656 per year) on Jan. 1, 2025. Automatic increases to the salary threshold begin in 2027.

Diving into specifics during the webinar, Emily M. Dickens, chief of staff, head of government affairs, and corporate secretary for SHRM, asked Jessica Looman, administrator of the Wage and Hour Division of the Department of Labor, what effect the rule will have on part-time employees.

Looman noted that when part-time employees do not work more than 40 hours in a workweek, they aren’t eligible for overtime. But whether an employee is part time or full time does not change the application of the Fair Labor Standards Act (FLSA), she said.

So, there’s no relaxation of the overtime rule for part-time employees if they do work more than 40 hours in a workweek, Young noted.

Are bonuses and commissions included in the salary threshold? Dickens asked.

Nondiscretionary bonuses and commissions still satisfy up to 10% of the salary threshold, Looman answered.

Takeaways for Employers

Looman noted that to qualify for the white-collar exemption, an employee must not only meet the salary threshold but also satisfy a duties test and be paid on a salary basis.

She said employers should:

• Review job duties to ensure exempt employees are bona fide executive, administrative, or professional employees. She cautioned against relying on titles or assuming that someone who is paid a salary is exempt.
• Remember that salaried workers could be entitled to overtime pay if they don’t meet the salary thresholds.
• Keep in mind that the overtime rule only comes into play if an employee works more than 40 hours in a workweek. Many employees don’t work overtime or work overtime only on an occasional basis.

Changing Dynamics

Employers face more scrutiny and less flexibility as the dynamics around the FLSA change, Young said.

• He noted that:
  FLSA litigation continues to soar.
• It’s increasingly harder to classify workers as exempt in some states.
• The proliferation of artificial intelligence can narrow judgment and impact exempt status.
• Many employees expect to work remotely, which can make managing nonexempt labor difficult for employers.
• Pay decisions are increasingly being scrutinized for transparency and equity.

[Related Resource: Want to learn more? See the SHRM Annual Conference & Expo 2024 concurrent session “Wage and Hour Compliance: A DOL Update and Ways to Avoid Common FLSA Overtime Liability Land Mines”]

Compliance Steps

Young recommended that employers:

• Identify and engage key stakeholders to ensure they are in alignment with the new rule and craft the company’s response.
• Partner with legal counsel to prepare and protect attorney-client privilege.
• Understand uncertainties presented by legal challenges.
• Understand which jobs are exempt, how many incumbents work in those jobs, and what is the minimum and maximum salary of those jobs, as well as whether there are bonuses.

Triage jobs to focus resources strategically, Young recommended. It’s key to identify roles earning well below the new thresholds, roles earning just below the new threshold, and roles that straddle the line with some workers at or above the threshold and some below.

Separate easy decisions from hard decisions and examine roles that present classification concerns beyond pay, such as frequently litigated positions, Young said.

Reclassification can feel like a demotion for employees, so assure them that they are no less important today than yesterday and that the change was driven by regulations, he recommended.

Coordination with State Requirements

Some states have salary thresholds that exceed the federal requirements, Young noted.

For example, the current salary threshold in the following states is higher than the July federal salary threshold:

• California: $66,560 annually.
• Colorado: $55,000.
• New York: $58,458.40 to $62,400.
• Washington: $67,724.80.

In addition, the duties test differs in some states, such as with the California quantitative duties test and Colorado quantitative duties test for executives.

Some states also don’t recognize all FLSA exemptions, such as the highly compensated employee exemption and the computer employee exemption, Young said.

The overtime rule didn’t change the FLSA’s outside sales employee exemption, which has its own set of requirements, he noted. Nor did it change the computer employee exemption, Young added.

“Make sure you’re compliant week in, week out” with the predetermined amount for the salary threshold for the white-collar exemption, he said. “It’s not OK if you’re fluctuating below the minimum predetermined amount on a weekly basis.”