Failure to adhere to the rules could be costly to your business.
The Fair Labor Standards Act (“FLSA”) is a federal law that protects workers by establishing overtime pay requirements. The FLSA is enforced by the U.S. Department of Labor Wage and Hour Division (“USDOL”). Effective July 1, 2024, USDOL issued an updated rule that defines when certain salaried workers are entitled to overtime pay, found at 29 C.F.R. Part 541. This rule extends the right to overtime pay to millions of salaried employees across the country.
Employers often think of their employees as falling into one of two categories: (1) hourly workers, for which hours worked are tracked and overtime pay is a well-known requirement; and (2) salaried workers, where hours worked are not typically tracked and the workers are thought to be “exempt” from overtime pay requirements. In the case of salaried workers, employers cannot simply assume that no overtime pay is required.
Why does this matter to employers? Failure to pay overtime to those employees entitled to it can result in a USDOL enforcement action or a private lawsuit seeking overtime pay going back two years. An employer could also be subject to “liquidated damages,” which has the effect of doubling any overtime compensation owed. Current USDOL policy regarding liquidated damages gives regional officers considerable flexibility in deciding to assess liquidated damages, increasing the financial risk to employers.
The updated rule defines when overtime pay is required for employees in executive, administrative, professional, and other roles. It also defines salary thresholds for when an employee can be considered “exempt” or “highly compensated” such that overtime pay is not required.
For example, before any salaried employee working in an administrative role could be considered “exempt” from overtime pay requirements, the employee must earn a salary of $844 per week, or $43,888 per year, rising significantly to $1,128 per week, or $58,656 per year, effective January 1, 2025. An administrative employee is one whose “primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer of the employer’s customers,” and whose “primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.” If you have an administrative employee earning a salary less than those salary caps, that employee will not be “exempt” and thus will be entitled to overtime pay.
The analysis of what roles meet the definitions of executive, administrative, and professional roles can be complex, and it is important for employers to get it right. Do you have questions about how this rule applies to your business? Reach out to L4SB for answers.
Law 4 Small Business (L4SB). A Slingshot company. A little law now can save a lot later.
