Perspectives

The Department of Labor (DOL) recently updated the Overtime Rule, bringing significant changes to the salary threshold for overtime exemptions. As of July 1, 2024, the threshold will increase to $844 per week, with a further increase to $1,128 per week on January 1, 2025. These changes will have wide-ranging implications for employers across the country. In this blog post, we’ll explore the historical context, financial and administrative impacts, and essential strategies for ensuring compliance with the new rule.

Historical Context and Rationale

The salary threshold for exemption has eroded over time, falling to $455 per week-currently less than the poverty threshold for a family of four. This has resulted in millions of workers working long hours without fair compensation. Between 1938 and 1975, the DOL increased the minimum salary required for the executive, administrative, and professional (EAP) exemption from overtime pay to every 5 to 9 years. However, long periods between increases after 1975 have caused the real value of the salary threshold to erode, lessening its effectiveness. 

The January 2025 salary threshold is set at the 35th percentile of earnings for full-time workers in the lowest-wage Census Region (currently the South), while the highly compensated employee (HCE) threshold is tied to the 85th percentile of earnings for full-time salaried workers nationally. Additional increases based on current wage earnings data are set to automatically occur every three years, beginning July 1, 2027.

Financial Impact

One of the most immediate concerns for employers is the financial impact of the new DOL overtime rule. With the new salary threshold increases, many employers will need to adjust their budgets to accommodate higher payroll expenses. For companies with a significant number of employees currently earning below these new thresholds, this could mean substantial increases in labor costs.

Employers will need to decide whether to raise salaries to maintain exempt status or reclassify employees as non-exempt and pay overtime wages. This decision will depend on the nature of the work, the number of hours typically worked, and the financial capacity of the business. Conducting a thorough cost-benefit analysis will be crucial to determine the most financially sound approach for your organization.

Administrative Impact

The new rule will require significant changes to payroll and HR practices. Employers will need to update payroll systems to ensure accurate tracking hours worked and proper payment of overtime for newly non-exempt employees. This may involve investing in new timekeeping software or upgrading existing systems. Additionally, HR departments may need to revise job descriptions and employment contracts to reflect changes in employment classification. Training for managers and HR personnel will be necessary to ensure compliance with the new regulations and effectively manage the reclassification process.

The administrative burden can be significant, especially for small business with limited HR resources. However, these changes are essential to ensure compliance and avoid potential legal issues.

Legal Compliance

Adhering to the new regulations is crucial to avoid penalties and potential lawsuits. Non-compliance can result in hefty fines, back pay for unpaid overtime, and legal fees. Additionally, failing to comply with the new rules can damage your company’s reputation and employee morale. Regularly auditing your payroll practices and employee classifications is important to ensure ongoing compliance. 

Consulting with legal experts and HR professionals can provide valuable guidance and help mitigate risks. Remember, staying proactive and informed is key to navigating these regulatory changes successfully.

Practical Considerations

Employers have some flexibility regarding the timing of reclassification. You can wait until January 2025 to reclassify employees if they meet the July, 2024 salary level. Planning for the reclassification process now will ensure a smooth transition. Stay informed about potential legal challenges and enjoinments to the new rule to make the best decision for your organization.

The DOL’s new Overtime Rule presents significant challenges and opportunities for employers. Assessing the financial and administrative impacts and ensuring legal compliance are crucial steps to navigate these changes successfully. By staying proactive and informed, you can make strategic decisions that benefit both your organization and your employees. 

Don’t know where to start? Integrating new legislation into your workflow shouldn’t be overwhelming. The Employment Law group at Wagner, Falconer and Judd stays up-to-date on state and federal laws so our clients can focus on running their businesses. Reach out today to learn how partnering with a firm like WFJ can provided much needed support to your organization’s leadership. 

Small businesses are a pillar of the American economy. In 2005, Congress enacted Bankruptcy Abuse Prevention and Consumer Protection Act to allow small business owners easier options for reorganization.

After almost 15 years, Congress realized small business debtors were the least likely to have a successful reorganization while still having a high number of small business failures.

On August 23, 2019, Congress passed the Small Business Reorganization Act (SBRA). The SBRA is a Chapter 11 reorganization bankruptcy under the new subchapter, Subchapter V.

The SBRA has new requirements as to which individuals or entities will qualify under Subchapter V, as well as new procedures. These features were added to allow small business to avoid some of the burdensome costs and time typically associated with a Chapter 11 bankruptcy.

The highlights of the SBRA are as follows:

1. Debt limit has a baseline of total debt at $2,725,625;
2. Elimination of the absolute-priority rule for creditors;
3. Appointment of a trustee, similar to those appointed in Chapter 12 and Chapter 13 of the Bankruptcy Code; and
4. Less strenuous disclosure statements and more debtor-friendly rules governing the plan requirements.

The complexity of filing bankruptcy for small businesses owners and small business debtors may be lessened by these new changes, the option to file under Subchapter V will keep many businesses operating.

The changes brought forth by the SBRA are exciting and a welcoming change to the law. There are many factors for small business owners to consider before filing of a reorganization bankruptcy. As always, it is best to consult with your LegalShield provider firm for a more detailed analysis.

Posted on April 14, 2020

WFJ’s Small Business Team has counseled clients in the execution of small business asset purchases for a diverse set of industries, including restaurants/food service, manufacturing, publishing, insurance, retail, and many others. …