In addition to this blog post, be sure to download your copy of our FLSA Changes: Decision-Making Guide (Part 1) and FLSA Changes: Implementation Guide (Part 2). These guides are part of a two-part series to assist you in complying with the new minimum salary thresholds.
The Department of Labor (DOL) has announced a long-awaited increase to the overtime salary thresholds, marking the first adjustment in four years. CFOs must take note as this revision significantly impacts the financial landscape for businesses, particularly as it pertains to labor costs and budgeting under The Fair Labor Standards Act (FLSA).
Effective July 1, 2024, salaried workers earning less than $844 per week will qualify for overtime pay. This threshold rises to $1,128 per week on Jan. 1, 2025. Job duties will continue to play a crucial role in determining overtime exemption status for most salaried employees, but the financial implications cannot be overlooked.
Who Will Become Eligible for Overtime Pay Under the Final Rule?
| Date: | Most salaried workers earning less than: |
|---|---|
| Currently | $684/week ($35,568/year) |
| July 1, 2024 | $844/week ($43,888/year) |
| July 1, 2025 | $1,128/week ($58,656/year) |
Starting July 1, 2027, the eligibility thresholds will be updated every three years, based on current wage data.
Source: dol.gov/OT
The rule also raises the total annual compensation requirement for highly compensated employees, setting it at $132,964 per year on July 1, 2024, and increasing to $151,164 per year on January 1, 2025. This means CFOs must adjust budgetary allocations to accommodate these increased salary expenses.
After 2025, these earnings thresholds will be subject to automatic increases every 3 years based on earnings data, which requires CFOs to have proactive financial planning strategies in place to adapt to these changes effectively.. The first automatic increase will occur July 1, 2027.
According to the FSLA, certain employees remain exempt from the FLSA’s minimum wage and overtime protections, including those employed as “bona fide executive, administrative, professional and outside sales employees”. Certain computer employees are also exempt. However, to avoid potential legal and financial risks, CFOs must ensure an employee’s specific job duties and salary meet the regulation’s requirements for an exemption to apply.
How CFOs Can Prepare for the New Overtime Salary Thresholds
Below are guidelines CFOs need to consider for their organizations to plan and prepare for how this ruling directly impacts their bottom line.
1. Costs and Budgeting:
- CFOs should anticipate increased labor costs and adjust budgets accordingly to accommodate higher salaries.
2. Workforce Management:
- Close monitoring of employees’ work hours is necessary to ensure compliance with the new threshold, which directly affects financial planning and resource allocation.
- Adjustments to scheduling and staffing decisions can help avoid excessive overtime, thereby minimizing additional financial burdens.
3. Job Roles and Responsibilities:
- CFOs may need to collaborate with HR to reevaluate job roles to determine whether positions should remain salaried or be converted to hourly to optimize cost-effectiveness.
- Some employees may require reclassification to align with the updated regulations, necessitating strategic financial planning and analysis.
4. Communication and Training:
- Transparent communication of the changes to affected employees is crucial to maintain morale and minimize disruption to operations.
- Training programs should be implemented to educate managers and HR personnel on the revised regulations, ensuring proper implementation and compliance.
5. Legal and Compliance:
- CFOs must stay abreast of evolving regulations and ensure compliance to avoid legal penalties and reputational damage, which directly impact the financial health of the organization.
By proactively addressing these adjustments, CFOs can lead their organizations in navigating the transition smoothly while ensuring financial compliance with the updated regulation. Be sure to get your copy of our FLSA Changes: Decision-Making Guide and FLSA Changes: Implementation Guide to help you prepare.
