How to Prepare for the Overtime Rule Changes

[Editor’s note: This document has been revised following the final April 2024 overtime rule.]

On April 23, 2024, the U.S. Department of Labor (DOL) issued a final rule that would increase the salary threshold effective July 1, 2024, to $844 a week ($43,888 a year) and increase it again effective Jan. 1, 2025 to $58,656 for the Fair Labor Standard Act’s (FLSA’s) white-collar exemption from overtime pay. The final rule was published in the April 26, 2024, issue of the Federal Register. 

While the final rule may be subject to legal challenges, employers can follow these steps to prepare for the overtime rule changes and create a strategy for compliance.

Step 1: Understand the Rulemaking Process

According to the DOL, "rulemaking is the term used when a government agency creates, modifies, or deletes rules in the Code of Federal Regulations (CFR). Rules are government agency statements (or parts of government agency statements) that either:

• Implement, explain or prescribe law or policy, or
• Describe an agency's organization, procedure, or practice requirements."

Once an agency decides that a regulatory action is necessary, it develops and publishes a Notice of Proposed Rulemaking (NPRM) in the Federal Register, soliciting comments from the public on the regulatory proposal. After the agency considers the public feedback and makes changes where appropriate, it publishes a final rule in the Federal Register with a specific date upon which the rule will become effective and enforceable. In issuing a final rule, the agency must describe and respond to the public comments it received.

See Regulations and the Rulemaking Process.

Step 2: Review the Final Rule

The final rule includes provisions that:

• Increase the standard salary threshold to $844 per week ($43,888 a year) effective July 1, 2024, and $1,128 ($58,656 a year) effective Jan. 1, 2025.
• Increase the salary threshold for the highly compensated employee exemption to $132,964 a year (effective July 1, 2024) and then $151,164 a year (effective Jan. 1, 2025). 
• Automatically update these earnings thresholds every three years.

Nondiscretionary bonuses and incentive payments (including commissions) paid on an annual or more frequent basis may continue to be used to satisfy up to 10 percent of the standard salary level.

There were no changes to the duties tests.

Step 3: Conduct an Impact Analysis

Review exempt positions that are currently paid below $844 per week as of July 1, 2024, and $1,128 per week as of Jan. 1, 2025, and determine what strategy to adopt to comply with the new regulations. Consider the financial impact of raising the salary versus paying for overtime as well as employee perceptions of fairness and impact on morale. Use SHRM's Impact Analysis Guide and Calculator to create a spreadsheet that outlines the different pay options and the potential costs of each. Keep in mind that legal challenges are likely, particularly of the Jan. 1, 2025, increase, so have a plan B if they are successful.

Step 4: Decide on a Plan

Based on the impact analysis completed in step 3, HR professionals should present a proposal to senior management outlining how the overtime rule will affect the organization and what option(s) are preferable to avoid significant financial impact and employee morale concerns. Offer recommendations that are based on solid data and explain how the preferred options are linked to better business results and the company's overall strategy. A decision by senior management should be made prior to the next budget planning cycle to ensure additional wages and expected benefit changes are budgeted for in the upcoming year.

Step 5: Create a Communication Plan

HR should develop a communication plan to announce the changes to affected employees. Educating employees on the regulatory changes and the analysis completed by the employer can help individuals understand why the changes are necessary. 

If the workplace as a whole needs clarification on the overtime rule changes and how individuals will be impacted, consider providing an overview of the new rule and how the employer is responding in general (e.g., by conducting an impact analysis and communicating with affected individuals directly). 

Related Resources:

Understanding Overtime Exemptions Under the FLSA

Final Rule: Restoring and Extending Overtime Protections