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DOL's New Overtime Rule and How it Affects Your Small Business

The Department of Labor has recently passed a new ruling to help ensure that a "hard day's work receives a fair day's pay."

Exempt/salaried employees - particularly the lower-paid ones - often spend more time in the office or in the field and receive no additional pay, as opposed to their non-exempt/hourly counterparts who receive overtime pay for hours worked over 40 in a workweek.

The new ruling will help alleviate this disparity. It will come to pass in a two-part process that is set to begin on July 1st of this year.

Two Phase Process

Currently, in addition to passing a "duties test" to determine if employees fall into one of the exemption categories (executive, administrative, professional, outside sales, and some computer-related individuals), workers must make at least $35,568 ($684 per week) to be considered exempt.

For the first time since 2019, this salary threshold is changing:

Phase One

Beginning July 1st of this year, the new threshold for executive, administrative, and professional (EAP) employees to be considered exempt will be raised to $43,888 ($844 per week), meaning if the worker's salary doesn't reach or exceed this amount, they must be paid overtime for any time worked over forty hours.

Phase Two

On January 1st of 2025, the threshold will be increased again to $58,656 ($1,126 per week), and then re-evaluated and adjusted accordingly every three years afterward.

Your Options

What does this all mean for you, the business owner?

Well, this means there are likely some employees that you currently do not pay overtime who will be owed overtime in the future.  For those employees, you will need to evaluate whether it makes sense to increase their salary basis to comply with the law and maintain their exempt status, or whether you will start tracking hours and paying overtime where appropriate. 

Regardless of which avenue you choose, make sure you have an HR professional to walk you through the pros and cons of each and how to implement new policies in a compliant and nondiscriminatory manner.

Risks of Misclassification

There are likely a few people out there thinking they will not make any changes and just "take their chances."

So, what are the risks involved in noncompliance?

  • You may be assessed a fine of up to $10,000 (per employee)

  • ​​You may be liable for back pay, punitive damages, attorney fees​, etc. for every employee who files a claim.

  • You're looking at lost time and resources (preparing documentation, legal meetings, hearings, etc.)​ for each claim.

  • You may even serve some jail time if it's determined that you have multiple "willful" misclassifications.

Needless to say, it's not worth the risk! Take the time now to review your current worker classifications, job descriptions, and salaries to ensure compliance with these new rulings set to take effect in just a few short weeks!

Need assistance reviewing current employee classifications and pay structures? Click the button below to schedule your complimentary consultation.

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