As of July 1, 2024, new overtime rules have taken effect that could significantly impact your business. If you’re an employer, these changes mean you may now be required to pay overtime to employees who previously weren’t eligible. It’s crucial to understand these updates to ensure compliance and avoid potential legal and financial consequences.

The Key Changes

Before July 1, 2024, employers were not required to pay overtime to employees earning more than $35,568 annually. Under the new regulations, this threshold has increased to $43,888, which means that any employee making $43,888 or less per year may now be eligible for overtime pay.

This rule applies to employees who meet specific criteria:

• They must be salaried employees.

• They cannot have supervisory responsibilities.

• Their job titles and descriptions must align with certain requirements.

Looking Ahead to 2025

These changes are just the beginning. On January 1, 2025, the salary threshold will increase again, rising to $58,656. This means that even more employees may qualify for overtime pay, and business owners need to prepare for this shift. If you have salaried employees who are not in supervisory roles and earn less than $58,656, you will be required to pay them overtime for any hours worked over 40 per week.

It’s estimated that nearly 4 million employees across the U.S. will be impacted by this rule. Therefore, it’s essential to review your payroll and employee classifications to ensure you’re in compliance.

Legal Challenges and Uncertainty

There is some uncertainty surrounding the new overtime rule, as it is currently being contested. For instance, a Texas judge has suspended the rule for businesses in that state, questioning whether the Department of Labor overstepped its authority. Additionally, recent changes to the Chevron Doctrine could lead to further challenges in court, potentially impacting the rule nationwide.

Moreover, the outcome of future elections could affect the longevity of this rule. A new administration may choose to reverse or alter the regulations. However, despite these uncertainties, it is wise to proceed as though the rule is in full effect.

What Should Business Owners Do?

Given the current legal landscape, it’s crucial to take proactive steps. Here’s what you should do:

1. Consult a Labor Attorney or HR Specialist: Review your payroll and employee classifications with a legal expert to ensure compliance. Determine which employees are exempt from the overtime rule and which are not.

2. Regularly Review Employee Status: This is not a one-time task. Plan to reassess your employees’ status at least twice a year to ensure they are still correctly classified.

3. Implement Overtime Policies: Consider creating strict policies regarding overtime approval. For instance, you might require employees to seek prior approval from their supervisors before working overtime.

4. Reclassify Employees: Some businesses are opting to convert salaried employees to hourly workers or adjust their salaries to bring them above the new threshold, thereby avoiding overtime obligations.

5. Stay Informed: While the rule is in effect now, ongoing legal challenges could impact its future. Keep an eye on developments and be ready to adjust as necessary.

The Consequences of Non-Compliance

Failing to comply with the new overtime rules can lead to significant consequences. While it’s unlikely the Department of Labor will audit your business immediately, employees are well aware of these changes. If they feel they’re being denied overtime pay, they can report you for wage theft, leading to lawsuits, penalties, and damaging PR.

The takeaway: Ensure your business is in compliance with the new overtime regulations to avoid legal issues and potential reputational damage.

Final Thoughts

The overtime rules officially changed on July 1, 2024, raising the salary threshold for overtime pay eligibility to $43,888. This threshold will increase again on January 1, 2025, to $58,656. Make sure you’re aware of which employees are affected, and take steps now to comply with the law. Don’t wait for lawsuits or government audits to push you into action.

Stay informed and consult legal or HR experts to navigate these changes smoothly. If you need further advice on managing your business, call our office today at 423.541.1111 to learn more and Risk Management Solutions.