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

These compensation changes could impact your small business–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.

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.

This means that more of your employees might to qualify for overtime pay over the next three years. Here's what small business owners 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

Remember, 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 the overtime changes mean for my business?

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

• Communication & Compliance: Our HR Resource Center can provide guidance on communicating the changes to your employees and ensuring your payroll practices are compliant with both revised FLSA regulations and any relevant state laws.

• 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 to reclassify employees as non-exempt. In other cases, you might have to adjust 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 small businesses like yours stay on top of payroll regulations so you can focus on managing your business. With our team of experts, user-friendly tools, and commitment to state-specific research–you can confidently manage your payroll and ensure your employees are paid correctly according to everchanging federal and state laws. Still have FLSA questions? We’re here to help!