The U.S. Department of Labor (DOL) announced a final rule that establishes the new salary threshold for overtime consideration at $43,888 under the Fair Labor Standards Act (FLSA). The new threshold takes effect July 1, and will increase again to $58,656 on Jan. 1, 2025.
The current salary threshold for overtime is $35,568, which means employers will need to move swiftly in updating compensation plans. The immediate increase is based on the methodology used in the 2019 overtime rule update. The Jan. 1 update is based on a new methodology that is being implemented, which also applies to the threshold for highly compensated employees.
As you work through updating your pay methodology and systems to account for the changes, ensure you keep pay equity top of mind.
Quick Action Items for Employers
The DOL’s new rule should not have caught employers off guard, as the proposal was rolled out in 2023. However, concrete deadlines should hammer home the urgency for organizations to quickly finalize compensation planning efforts.
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A quick checklist for employers still in the process of working through the changes includes:
- Audit current employment structures. Identify all employees who are making between $35,568 and $58,656 and examine how much overtime is logged by each. Additionally, segment for employees that are exempt or non-exempt. Make sure all employees are classified appropriately based on organizational structure.
- Calculate as needed. For employees with salaries between the old and new thresholds, you will need to either increase their base pay to top the new threshold so that they will continue to be exempt, or reclassify them as non-exempt, meaning they now are eligible for overtime.
- Adjust systems and procedures as needed. Any changes made to base salary and exemption status will need to be updated accordingly. If employees are newly eligible for overtime, they will need to be trained on timekeeping policies and what constitutes hours worked, etc.
- Prepare a communication plan. Your business is likely to undergo significant changes amid this transition process. Developing a communication plan to address each scenario is critical. Make sure employees understand how you arrived at the decision affecting them and what it means.
Pay Equity Considerations
Every step of the process should keep pay equity in mind. For large organizations (5,000 or more employees) in particular, the rule could be particularly disruptive to pay equity efforts if done haphazardly.
Some items to include and consider during your process include:
- Conduct an updated pay equity analysis. A pay equity audit could reveal exempt employees who are paid less than $58,656 are eligible for remediation that would put them above the minimum salary threshold requirement. This will streamline the process and ensure you are correctly allocating budget for other employees who could be targeted for pay raises to move above the threshold.
- Prevent creating new pay inequities. Every compensation decision is an opportunity to help prevent, or potentially worsen, a pay inequity. For this reason, decisions should be in alignment with internal equity at every stage of the employee lifecycle. If employees are given salary increases to maintain their exempt status, it may necessitate similar pay increases for their peers or supervisors who were already above the threshold to avoid pay compression.
- Align with pay policy and philosophy. Your pay philosophy remains the guiding principle. What are your Wage Influencing Factors (WIFs)? When do pay adjustments typically occur? Do any employees qualify for merit-based increases that would put them over the minimum threshold? If an off-cycle pay adjustment is needed that isn’t performance based, how will it be communicated and accounted for moving forward?
- Audit potential salary ranges for outgoing offers. Ensure you are staying on track with updated classification and pay practices by auditing salary ranges on job postings for planned and unplanned recruiting efforts. If you are in the process of filling a position for an exempt role that you would typically pay between $40,000-$50,000, you will need to update the range to reflect the new minimum threshold. Otherwise, you are creating additional work down the road.
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In addition, you should account for geographic pay differences in decision making. Areas with higher cost of labor are likely less vulnerable to the minimum threshold, and therefore could be ignored. However, this too could exacerbate pay inequities at your organization.
Overtime Rule Background
According to the DOL press release, starting July 1, 2027, salary thresholds will update every three years to reflect changes in earnings “by applying up-to-date wage data to determine new salary levels.” According to the release, such regular updates will “ensure predictability” and “[protect] future erosion of overtime protections so that they do not become less effective over time.”
Thus, employers will need to remain cognizant of this in building out future compensation plans.
Before issuing its proposed rule in September 2023, the DOL said it had numerous touchpoints with employers, workers, unions and other stakeholders. In developing the final rule, it stated it considered more than 30,000 comments.
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Adapting to changing legislation such as the DOL overtime rule salary threshold is made easier leveraging legally-compliant pay equity software.
Conduct an audit at the intersection of gender, race/ethnicity, age, disability and more in one statistical regression analysis. This helps you target where action should be taken and provides recommendations for how it can be done most effectively.
And now, with the addition of Trusaic’s latest innovation R.O.S.A., you can optimize your remediation spend. While other solutions are limited and can only perform a single run of a statistical model to identify remediation opportunities, R.O.S.A. is able to perform dozens (or even hundreds) of remediation simulations iteratively to identify the pay adjustments that will most cost effectively address a pay disparity.
Navigating the pay equity and compensation compliance landscape is complex. Proceed with confidence by utilizing our market-leading pay equity software.
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