Understanding the New Overtime Rules: What Small Business Owners Need to Know

Small business owners and leaders must stay informed about the evolving landscape of overtime regulations. In this guide, we’ll delve into the recent changes, their significance, and essential steps to prepare your business.

What Are the New Overtime Rules?

The U.S. Department of Labor (DOL) has revised overtime pay regulations, primarily focusing on the salary threshold. This threshold determines which employees qualify for overtime pay when they exceed 40 hours per week.

Why Do These Changes Matter?

The updated rules can substantially impact payroll costs and workforce management strategies. Employees previously exempt from overtime may now fall under the new threshold, necessitating adjustments in scheduling and compensation.

What Are the New Salary Thresholds?

The revised salary thresholds are significantly higher, affecting salaried employees earning less than the specified amounts. Here’s a breakdown:

Effective Date	Salary Threshold
Before July 1, 2024	$35,568 per year ($684 per week)
July 1, 2024	$43,888 per year ($844 per week)
January 1, 2025	$58,656 per year ($1,128 per week)
July 1, 2027, and every 3 years thereafter	To be determined by applying to available data the methodology used to set the salary level in effect at the time of the update.

Who Is Affected by These Changes?

These changes primarily impact salaried employees earning below the new thresholds. Employees earning less than $43,888 annually as of July 2024 and those earning less than $58,656 annually as of January 1, 2025 will be eligible for overtime pay.

What Should You Do to Prepare?

Here are some steps you can take to prepare for the new overtime rules:

1. Review Your Employees’ Salaries: Identify employees affected by the new thresholds.
2. Consider Salary Adjustments: Decide if you want to increase the salaries of some employees to keep them exempt from overtime. For example, if an employee currently earns $42,000 per year, you might increase their salary to $43,888 to keep them exempt. (Note: This example would also require a second adjustment on January 1, 2025 to meet the next increase.)
3. Adjust Work Hours and Duties: If you cannot increase salaries, you may need to adjust work hours or duties to manage overtime costs. This might mean limiting the number of hours certain employees work or redistributing tasks among staff.
4. Add a Timekeeping System: Implementing a timekeeping system can help you track overtime and stay in compliance with the new rules. A good timekeeping system ensures accurate recording of work hours and makes it easier to manage payroll.
5. Communicate with Employees: Explain the changes to your employees so they understand how the change will affect their pay and work hours. Clear communication can help avoid confusion and frustration.

What If You Don’t Comply?

Failing to comply with the new overtime rules may result in penalties and legal ramifications for your business. It’s important to take these changes seriously and make the necessary adjustments to avoid any problems.

How Can You Manage the Impact on Your Business?

Managing the impact of these changes on your business can be challenging, but it’s possible with careful planning and preparation. Here are a few tips:

1. Budget Allocation: Plan your budget to account for potential increases in labor costs due to overtime pay. This might mean finding areas to cut costs or increasing prices for your products or services.
2. Improve Efficiency: Seek methods to improve productivity without extending work hours. Consider investing in technology or training to boost productivity.
3. Monitor Work Hours Closely: Keep traack of employee’s hours to prevent excessive overtime. This can help you control costs and ensure compliance with the new rules.
4. Seek Professional Advice: If you’re unsure how to handle the changes, consider seeking advice from a CPA or attorney. They can provide guidance on compliance and help you develop a strategy that works for your business.

Conclusion

The new overtime rules from the DOL are designed to provide a larger segment of employees with overtime protection for their work. As a small business owner or leader, it’s important to understand these changes and take the necessary steps to comply. By reviewing your employees’ salaries, adjusting work hours, adding a timekeeping system, and communicating with your employees, you can manage the impact of these changes on your business. Remember, clear communication and careful planning can help you navigate these changes successfully.

For more detailed information, you can visit the U.S. Department of Labor’s website or the Society for Human Resource Management’s (SHRM) page on the FLSA Overtime Rule.

HCP provides the information in this article for general guidance only.  The content does not constitute legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other advisers. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied.