The Fair Labor Standards Act (FLSA) is a federal law that establishes minimum wage, overtime pay, recordkeeping, child labor standards, and more. The FLSA serves as a fundamental labor law, aiming to protect workers’ rights and ensure fair compensation practices across industries.

There have been some significant changes to the FLSA in 2024 with more on the horizon. It’s important for employers to learn and understand what these changes are and how they can impact their businesses and employees. It's important to note that some states have their own laws regarding overtime exemption salary thresholds. 

What is the Fair Labor Standards Act (FLSA)?

The FLSA is a federal law administered by the Department of Labor (DOL), applicable to most employees in the United States. It is often referred to as the cornerstone of all labor laws. Among many things, some of the core standards set by the FLSA include federal minimum wage, overtime pay and requirements, and more.

FLSA Employee Classification and Overtime Exemptions

One of the critical components of the FLSA are the requirements regarding overtime pay. The FLSA outlines different classifications of employees, either exempt or non-exempt, dictating whether or not they are entitled to overtime pay.

Exempt employees are not entitled to overtime pay. To be considered exempt, an employee must pass both a duties test and the salary level test.

Non-exempt employees, on the other hand, are entitled to overtime pay and must be compensated accordingly for any hours worked over 40 in a workweek.

Proper classification is crucial to avoid potential legal liabilities related to wage and hour violations, and this is where the most recent FLSA update took hold.

FLSA Update for 2024

Effective July 1, 2024, the Department of Labor implemented a new rule that increased the overtime exemption salary threshold from $35,568 per year ($684 per week) to $43,888 per year ($844 per week).

For highly compensated employees the threshold increased to $107,432 per year.  Highly compensated employees must also make $844 per week on a salary or fee basis.

This is what is known as the salary level test. Employees must meet the salary threshold to be exempt from overtime.

Future Updates

Salary thresholds will update again as of January 1, 2025. The minimum salary required for the EAP exemptions from overtime under federal law will increase from $844 per week to $1,128 per week (equivalent to $58,656 per year). 

Note: EAP stands for “Executive, Administrative, and Professional” employees. It is a type of employee classification. Employees must be classified as EAP in order to have a chance at being  exempt from overtime pay. To qualify for this classification, employees must meet certain criteria regarding their job duties and responsibilities, also known as the duties test.

The minimum total compensation requirement for highly compensated employees will increase to $151,164 per year. Highly compensated employees must also make at least $1,128 per week on a salary or fee basis.

The final rule also includes a mechanism to automatically update the salary and total compensation thresholds every three years. The mechanism uses earnings data published by the U.S. Bureau of Labor Statistics to determine future thresholds. The next update should take place in 2027.

How Will FLSA Changes Impact My Business?

The FLSA changes may have a significant impact your business and employees, which can include:

• Increased labor costs: Employers may need to begin paying overtime to employees who until now were considered exempt
• The need for payroll adjustments: Employers may need to review their payroll system and make adjustments to payroll for those employees who were impacted by the new rule.
• Impacted employee schedules: Depending on your company’s strategy, certain adjustments to employee schedules may be necessary to avoid overtime hours
• Handbook updates: With the updated FLSA regulations, employers may need to update their employee handbook and certain policies, workplace posters, or even make corrections for previously mis-classified employees.
• The need to update employees: It’s crucial that companies communicate all the FLSA changes to their employees with clarity and transparency. Provide a detailed explanation of the changes and how they will impact employees’ pay, work hours, and classifications, and encourage employees to ask questions.

Generally, businesses have two courses of action, they can either begin paying out overtime to those who now are entitled to it, or they can adjust compensation plans to keep employees who were previously exempt, exempt still.

How to Navigate the FLSA Changes in 2024

We’ve developed an FLSA compliance checklist to provide guidance on next steps needed by employers to ensure compliance with the FLSA Changes in 2024.

If you need custom support with meeting compliance requirements around the updated FLSA regulations, it’s best to reach out to a human resource consulting company.

Reach out to us today and get the support you need. We’ll ensure you a smooth and successful transition to the new FLSA regulations and prepare you for future adjustments.