What is Overtime?

Beginning July 1st, the Department of Labor will implement changes to the overtime rules, catching many small business owners flat-footed. Significant changes will be coming on July 1st of 2024, with even more changes starting January 1st of 2025.

Read on to learn more about whether your business will be affected.

Overtime Law

We’re talking about Federal overtime laws in this article, but be aware that state and local regulations may be different, so check with your local small business accounting service, payroll outsourcing company, or Human Resources expert.

Generally speaking, Federal overtime law requires employees to be paid 1.5 times their hourly rate for any hours (or fractions of hours) over 40 hours per week. Start from this assumption. If you have employees who work more than 40 hours a week, they probably need to be paid 1.5 times their hourly rate for ALL hours (or fractions of hours) over 40.

There are some notable exceptions to this rule, however.

Exempt Overtime Rules

Federal labor law provides an exemption for overtime pay for employees who are in the following positions:

• Executive

• Administrative

• Professional

• Outside Sales

Executive

The executive exemption applies to employees who primarily manage the business or some department or subdivision. They must have at least two or more full-time employees that report directly to them. Executives also have to have the authority to hire and fire employees or their recommendations as to hiring, firing, and promotion must have significant weight.

Administrative

The administrative exemption applies to people whose primary duties are office or non-manual work directly related to the management of the company. Their job responsibilities must include the exercise of discretion and independent judgment concerning “matters of significance”. Therefore, a customer service representative wouldn’t qualify under the administrative exemption.

Professional

The professional exemption applies to those whose jobs require “advanced knowledge”. This work is primarily intellectual in character and includes exercising judgment and discretion. This would include traditionally defined professions such as Information Technology, Accounting, Legal, Architecture, and Engineering.

The professional exemption doesn’t apply to intellectual work that is general in nature, rather it requires advanced knowledge in a field of science or learning.

Outside Sales

The outside sales exemption applies to those whose job is primarily to sell and obtain orders, or contracts for services. The salesperson must be regularly engaged away from the employer’s place or places of business.

Exemption Requirements

In addition to having job responsibilities in one of the above exempt categories, employees must also meet an additional salary requirement to be exempt from overtime pay.

Beginning July 1, 2024, the salary of the individual must be at least $844/week ($43,888 per year). Beginning January 1, 2025, that amount rises to $1,138 per week ($58,656 per year).

This salary amount cannot be subject to reduction because of quantity or quality of work. In other words, they have to be paid the same amount whether there is work for them to do or not.

What Should You Do?

Because the wage limits are increasing so drastically (almost doubling), many employees who were exempt from overtime rules before, will no longer be exempt. Of course, you can raise their salaries to the minimum requirements, but that may not be economically feasible in many cases.

Alternatively, you will need to start tracking hours and paying overtime. A small business accounting service that specializes in providing payroll services will be crucial in navigating this process seamlessly. Core Group offers a state of the art time tracking options as part of our payroll services making tracking time easy.

What you don’t want to do is ignore this requirement. Department of Labor regulations call for the assessment of back wages plus a 100% fine for the amount of underpaid wages. I can promise you that lawyers are already gearing up to go after employers.

Reach out to Core Group today to find out how easy compliance with this new regulation is with a small business accounting service.