THE NEW OVERTIME LAW

Steven Cesare, Ph.D.

A business owner from Georgia called me the other day to talk about the upcoming change to the Fair Labor Standards Act (FLSA) that will soon revise the current overtime standards for non-exempt employees. It is important to be reminded that the FLSA, and various state laws, specify the lawful criteria that define the precise legal classification of every employment position: Exempt and Non-exempt.

Exempt employees, often times referred to Salaried Employees, are “exempt” from receiving overtime pay due to the nature of their work and amount of compensation they receive. In short, Exempt employees never receive overtime pay, regardless of the number of hours they work during a workweek.

Conversely, non-exempt employees, often times and with some degree of error are called Hourly Employees, may receive overtime pay. In specific, non-exempt employees must be paid at least 1.5 times their regular rate of pay for every hour they work in excess of forty, during any workweek.

The determination of whether a position, not an employee, is classified as being either exempt or non-exempt rests on two tests: the Duties Test and the Salary Test. While extremely bureaucratic at its core, suffice it to say, the Duties Test evaluates the degree of autonomy or manual labor of the position being evaluated. If a position performs manual labor more often than not, that position (e.g., Mechanic, Foreman, Irrigator, Administrative Assistant) is frequently judged to be non-exempt. Likewise, per the Duties Test, if a position requires independent judgment and discretion more often than not, that position (e.g., Office Manager, Landscape Manager, HR Manager) is typically classified as exempt (i.e., no overtime pay).

The second test is the Salary Test, which is the essence of the recent change to the FLSA. Currently, if a non-exempt position pays less than $35,568 per year, that position is eligible to receive overtime pay. Per the new law, beginning on July 1, 2024, the Salary Test increases to $43,888 per year. Then, on January 1, 2025 the Salary Test will increase again to $58,656 per year. And then next, starting on July 1, 2027, the Salary Test will automatically increase every three years.

Thus, to be designated as “exempt” (i.e., no overtime pay), a position must pass the Duties Test and the Salary Test. If only one of those two tests is met, the position is typically classified as non-exempt (i.e., eligible to receive overtime pay). Employees earning less than the Salary Test threshold are eligible for overtime, while those earning more than that threshold may be exempt, depending on their job duties.

Within the context of the revised law, companies must decide whether to raise the pay of those exempt employees who earn less than the new Salary Test threshold (i.e., $43,888) so they can remain exempt from overtime pay. Companies that choose not to raise those exempt employees’ wages must be prepared to pay overtime when they work more than 40 hours in a workweek, since they will become non-exempt.

In practical terms, if a company has an exempt Field Supervisor currently making $40,000 per year, that employee’s wage must increase to at least $43,888 by July 1, 2024 (and again to $58,656 by January 1, 2025), or that employee will be eligible to receive overtime pay (i.e., non-exempt) starting on July 1, 2024.

According to the Society for Human Resources Management, all companies should immediately consider the following steps to maintain legal compliance thereby avoiding a wage and hour lawsuit.

• Identify current exempt employees who earn less than the new annual Salary Test of $43,888.
• Estimate the average number of hours those employees typically work in a workweek.
• Analyze the company budget to determine the potential fiscal impact of this revised law.
• Review job descriptions for exempt positions to verify that their duties are accurately listed.
• Ensure all employees in the same job description (i.e., Foreman) are classified similarly; if some employees are designated as exempt while others are non-exempt, a discrimination claim may exist.
• Develop a communication plan for those employees moving from exempt to nonexempt status.
• Consider placing restrictions on overtime and explore ways to track non-exempt workers’ hours.
• Determine whether changes are needed in other policies such as remote work and mobile device usage to curtail overtime and working off-the-clock.

If you have any questions or comments about this topic or anything else related to human resources, Sign Up for Steve’s HR Helpdesk!