What the DOL’s Proposed Overtime Rule Means For Small Businesses

By Suzanne Lucas, Inc. (TNS)

The White House just approved a proposal from the Department of Labor to raise the minimum salary for exemption to $55,068 per year. It’s currently at $35,568 per year, so this is quite a jump.

What does this mean for your business? Let’s break it down.

Salary exemption

Under the Fair Labor Standards Act, employees who work more than 40 hours a week are entitled to overtime. However, some employees are exempt from this rule under certain conditions.

The first requirement an employee must meet to be exempt from overtime is that they be paid on a salary basis—that is, they get the same paycheck every week (or pay period) regardless of whether they have worked 10 hours or 100 hours. The second requirement is that the check be a minimum salary—right now, it’s $684 per week. Under the new proposed rule, that would jump to $1,059 per week.

Once pay is secured at or above the minimum range, then the employee must meet the duties test. The duties test can be a bit complicated for some positions, but here is a brief explanation of what can qualify an employee for exemption:

Manager: They must supervise two or more employees, and managing has to be a big part of their job. You can’t just slap a manager title on a fast-food worker who tells co-workers when to take their breaks but mainly serves customers and makes burgers.
Professional: Doctors, registered nurses (but not other nursing staff), lawyers, accountants (but not accounts payable/receivable people), and other highly skilled people with professional discretion qualify for exemption.
Administrative professional: These are people who work in finance, HR, quality assurance, IT (although IT has its own exceptions), public relations, and other areas that keep the business going but don’t necessarily manage others. These are not “admin” roles.
Outside sales: The key part of this is “outside.” They need to be out and about, meeting with customers. If they do everything on the phone, they are inside sales and ineligible for exemption.

Pretty much everyone else needs to be paid by the hour and receive overtime if they work more than 40 hours in a week. (There are exceptions, so please consult with an HR professional before assigning a status to an employee.)

What this change means in practical terms

If this change goes through—it must first be placed in the federal register and survive court challenges, which will undoubtedly come—then any employee you currently have earning less than $1,059 per week will become non-exempt.

You will need to track all their hours worked. This means employees need to have some way to clock in and out. If their schedules have been flexible, it can become more complicated.

For instance, if a remote employee has just needed to “get their work done” and hasn’t had a set schedule, they now will need to clock in and out when they start and stop work. You have to pay someone for breaks of less than 20 minutes, but otherwise, if they are taking the kids to school or go grocery shopping, they need to clock out and clock back in when they return.

You may need to cut off communication when they are not working. Texting a non-exempt employee a question that takes two minutes to answer from time to time is not a big deal. But if the person is off the clock, they are off the clock. Sometimes, the best way to ensure employees don’t work off the clock is to limit their access to email and Slack when they are clocked out.

You’ll also need to calculate an hourly salary. The easiest way to do this is to take their current annual salary and divide by 52 for the weekly salary, and then 40 for the hourly rate. (This is how the DOL calculates it, even though there are really 52 weeks and one day in a non-leap year.)

But if your employee has worked more than 40 hours a week in the past, you may wish to lower that rate to account for the amount of overtime you will have to pay. Or you may wish to forbid employees from working overtime.

One note on forbidding employees from working overtime: If an employee does extra work, you still have to pay them. You can discipline them or fire them for breaking the rule, but you still have to pay.

While the messaging around this change is that 3.6 million Americans will now be eligible for overtime—which sounds great for employees—your employees may not like it. For whatever reason, there can be a stigma around hourly paid work. Employees may feel like they are not trusted and that you are micromanaging them. Reassure your employees that your trust in them has not changed, that the Department of Labor made this change and you will simply be complying with it.

You may be tempted just to have everyone submit a 40-hour timecard each week and keep things business as usual. Don’t fall for this temptation—FLSA violations can land you in a heap of trouble. All it would take is one employee complaining or one audit to cause things to fall apart. You’d have to pay back overtime, court costs, and fees. Track those hours.

This rule is expected to go into effect at the beginning of 2025. If it does, it has a mechanism to adjust the minimum threshold every three years to keep pace with inflation.

ABOUT THE AUTHOR:

Suzanne Lucas is a freelance writer who spent 10 years in corporate human resources, where she hired, fired, managed the numbers, and double-checked with the lawyers.

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