The landscape of labor law is ever-evolving, and keeping abreast of changes is crucial for businesses to maintain compliance and avoid costly legal repercussions. One of the most significant recent changes is the new overtime rule for exempt employees.

What is the New Overtime Rule?

The U.S. Department of Labor (DOL) periodically updates regulations to reflect the modern workforce better. Effective July 1, 2024, the new overtime rule increases the salary threshold for employees to qualify as exempt from overtime pay under the Fair Labor Standards Act (FLSA). The DOLS two-part approach to this new overtime rule means establishing one salary-threshold raise on July 1, 2024, and a second salary-threshold increase on January 1, 2025.

Previously, standard salary level employees earning less than $35,568 annually were entitled to overtime pay. The new rule raises this threshold for standard salary level employees to $55,068, meaning that any salaried employee earning below this amount must be paid overtime at one and a half times their regular pay for any hours worked beyond 40 in a workweek. Highly Compensated Employees have their threshold increased from $107,432 to $143,988 annually.

Key Implications for Businesses

  1. Reclassification of Employees: Businesses must review their payroll and potentially reclassify employees. Those currently classified as exempt but earning below the new threshold must either receive a salary increase to maintain their exempt status or be reclassified as non-exempt and paid overtime.
  2. Budget Adjustments: The financial impact of the new rule could be significant. Employers should conduct a thorough analysis to understand how these changes will affect their labor costs and budget accordingly. This might involve balancing the costs of salary increases against potential overtime expenses.
  3. Compliance and Recordkeeping: Ensuring compliance with the new rule requires meticulous recordkeeping. Employers must accurately track hours worked by non-exempt employees to calculate overtime pay correctly. Failure to do so can result in hefty fines and legal action.
  4. Employee Morale and Communication: Transparent communication with employees about classification and pay structure changes is crucial. Misunderstandings can lead to dissatisfaction and decreased morale. Employers should provide clear explanations and support to help employees understand the reasons behind these changes.
  5. Review of Job Duties: The exemption status is not solely determined by salary but also by job duties. Employers must ensure that job descriptions and duties align with the criteria for exempt status. This may require a detailed review and potential restructuring of roles and responsibilities.

Steps to Ensure Compliance

  1. Conduct an Internal Audit: Review the current classification of all employees and identify those affected by the new rule. Determine the financial impact of reclassification or salary adjustments.
  2. Update Payroll Systems: Ensure your payroll systems can track hours accurately and calculate overtime pay. This might involve investing in new software or upgrading existing systems.
  3. Train Managers and HR Staff: Provide training on the new rule and its implications. Ensure those responsible for payroll and compliance are well-informed and prepared to implement necessary changes.
  4. Communicate with Employees: Develop a communication plan to inform employees about the new rule and how it affects them. Be prepared to answer questions and address concerns transparently.
  5. Consult Legal Experts: Given the complexity of labor laws, consulting with legal experts can provide valuable insights and ensure your business is fully compliant. A business law attorney can help navigate the nuances of the new rule and implement best practices.


The new overtime rule for exempt employees represents a significant shift in labor regulations. Understanding and adapting to this change is crucial for businesses to maintain compliance and avoid legal pitfalls. Businesses can navigate this transition smoothly by taking proactive steps to reclassify employees, adjust budgets, and ensure accurate recordkeeping. Staying informed and seeking professional advice will be vital in managing these changes effectively and ensuring continued success. If you have any questions regarding the new overtime rule and what it might mean for your small business, contact us to get the help you need.

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