The Fair Labor Standards Act (FLSA) is revising its overtime regulations, effective July 1, 2024. 

These compensation changes could impact your small business clients–possibly increasing payroll costs and requiring adjustments to employee classifications. Let’s take a look at how these changes might influence payroll for your small business clients.

Understanding the Impact on Small Businesses

The key change revolves around the minimum salary threshold for overtime exemption.

Previously, employees qualified for exemption if their duties met the "standard duties test" (executive, administrative, or professional) and they earned at least $684 per week ($35,568 annually).

What's Changing with Federal FLSA Overtime?

The federal revisions focus on the minimum salary level required for an employee to be exempt from overtime pay. Here's what your small business clients need to know:

New Minimum Salary Levels: For standard salary levels:

• Effective July 1, 2024: $844 per week ($43,888 annually) 
• Effective January 1, 2025: $1,128 per week (58,656 annually)
• Effective July 1, 2027 and every three years thereafter: Rates will be determined by applying available data to determine the salary level in effect at the time of the update

New Total Annual Compensation Threshold: For highly compensated employees:

• Effective July 1, 2024: $132,694 annually, including at least $844 per week paid on a salary or fee basis
• Effective January 1, 2025: $151,164 annually, or at least $1,128 per week paid on a salary or fee basis
• Effective July 1, 2027 and every three years thereafter: Rates will be determined by applying available data to determine the salary level in effect at the time of the update

FLSA Overtime: Federal Floor, Expect State Variations

Though the FLSA sets a national minimum standard for overtime pay, some states might have their own overtime laws that are more employee-friendly.

States like California, New York, Illinois, Pennsylvania, and Colorado have already established higher minimum salary levels for overtime exemption and have different rules for calculating overtime pay. 

What do these overtime changes mean for your small business clients?

With the combined impact of federal and potentially varying state regulations, ensuring smooth payroll processing can begin to feel overwhelming for your clients. But we can help:

• Communication & Compliance: Our HR Resource Center is a helpful tool that can provide guidance on communicating the changes to your clients’ employees.

• You’ll receive automated notifications from the HR Resource Center to keep you in the loop about how overtime changes will impact your state. 
• It might ­­be time for your small business clients to reclassify their employees as non-exempt. In other cases, they might have to adjust employee salaries to meet the new threshold guidelines. Our HRRC can provide pertinent information and education on employee reclassification.

• Streamlined Payroll Processing: Our user-friendly payroll system can handle overtime calculations, factoring in both federal and state requirements, to ensure accurate paychecks for your clients’ employees.

Don't Let Overtime Changes Slow You Down

At ConnectPay, we're dedicated to helping CPAs like you service your small business clients so you can refocus on core services. Curious what a CPA Partnership looks like with ConnectPay? Get in touch with us!