Overtime Law Changes: What Business Owners Need to Know

If you own a business, you already know that keeping up with payroll laws can feel like a full-time job. And just when you think you’ve got everything set, the rules change again.

On July 1, 2024, the Department of Labor (DOL) adjusted the Fair Labor Standards Act (FLSA) salary threshold for overtime eligibility. And here’s the kicker: this isn’t a one-time update. The threshold changes every July 1, so another update is coming in 2025. 

If you haven’t checked your payroll and employee classifications yet, now is the time. Let’s break it all down in plain English—no legal jargon. 

What Changed on July 1, 2024? 

The DOL increased the salary threshold for exempt employees to $43,888 per year. 

Why does this matter? 

If an employee earns less than this amount, even if they’re salaried, they must be paid overtime for any hours worked over 40 in a week. 

Example: 

Let’s say you have a salaried employee making $40,000 per year. They work 45 hours in a week. 

• Before the change, you may not have been required to pay them overtime. 
• Now, they must be paid time-and-a-half for those five extra hours. 
• If their standard hourly rate is $20, their overtime rate is $30 per hour. 
• That’s an extra $150 per week for just one employee. 
• For businesses in retail, hospitality, and food service, where salaried employees often work over 40 hours, this change can significantly impact labor costs. 

Why Should Business Owners Care? 

Besides the obvious (it’s the law), failing to adjust your payroll can lead to hefty fines, employee lawsuits, and a whole lot of stress. But beyond that, compliance is good for business. 

 Avoid costly penalties – Lawsuits and back pay claims can add up fast. It’s cheaper to get payroll right the first time. 
 Boost employee morale – No one likes working extra hours without proper pay. Fair wages build trust. 
 Improve retention – Competitive pay and transparent policies help keep your best employees around. 
 Protect your reputation – Word spreads fast when employees feel underpaid or overworked. 

The bottom line? Following these updates isn’t just about avoiding fines—it’s about keeping your business running smoothly. 

Are Your Employees Exempt or Non-Exempt? 

One of the biggest payroll mistakes businesses make is assuming salaried employees are exempt from overtime. Not true. 

Here's a quick breakdown of the key differences between exempt and non-exempt employees, including the salary threshold that determines which category someone falls into.

If an employee earns less than $43,888 per year or doesn’t meet the DOL’s job duties test, they are non-exempt and must be paid overtime. 

Misclassification can lead to back pay claims, penalties, and lawsuits, so double-check before assuming an employee is exempt. 

Common Payroll Mistakes to Avoid 

Even businesses with the best intentions can run into trouble with overtime compliance. Here are some common pitfalls to watch out for: 

 Misclassifying Employees – Titles don’t determine exemption status; salary and job duties do. 
  Skipping Time Tracking for Salaried, Non-Exempt Employees – If they’re below the threshold, you must track their hours.
 Forgetting to Include Bonuses & Commissions in Overtime Pay – Some extra earnings count toward the overtime rate. 
  Ignoring State Laws – Some states have stricter rules than federal law. Check local wage laws, too. 

3 Ways to Stay Ahead of the Rules 

Following labor laws doesn’t have to be a headache. Here’s how to stay compliant with minimal stress: 

1. Do a Mid-Year Payroll Check

Since the salary threshold changes every July 1, reviewing employee salaries and classifications mid-year keeps you ahead of any adjustments. If you have employees close to the threshold, consider: 

• Increasing their salary to keep them exempt.
• Switching them to hourly pay if tracking their time makes more sense.

2. Use Automated Time Tracking

Non-exempt employees must have their hours recorded properly—no more estimating or paper timesheets. A payroll system with built-in time tracking eliminates errors and ensures compliance.

3. Simplify Payroll with the Right Platform

 The right payroll platform takes the guesswork out of overtime compliance.  

• Automates payroll calculations, so overtime is applied correctly every pay period
• Tracks hours for non-exempt salaried employees automatically
• Flags employees approaching the FLSA exemption threshold before it becomes a problem

Looking Ahead: What to Expect in 2025

The DOL updates the salary threshold every year. That means another change is coming on July 1, 2025. While we don’t yet know the exact number, planning ahead ensures no surprises when the next update rolls around. 

Payroll Compliance Checklist 

 Review all salaried employees' earnings to determine if they need reclassification.

 Ensure accurate time tracking for all non-exempt employees.

 Update payroll systems to calculate overtime correctly.

 Check state laws for additional wage and overtime requirements.

 Use a payroll platform to automate compliance.

Frequently Asked Questions 

• Do part-time employees qualify for overtime pay?
  Yes! If they are non-exempt and work over 40 hours in a week, they must be paid overtime.
• Can I offer comp time instead of paying overtime?
  Not for private businesses. Only public sector employers can offer comp time in place of overtime.
• What if I misclassify an employee?
  You could face back pay claims, penalties, and possible lawsuits. When in doubt, consult a payroll expert.

Take the Guesswork Out of Payroll Compliance 

Overtime rules change every year, and getting caught off guard costs more than the back pay. Fines, lawsuits, and lost trust with your team all add up fast. YPD HCM gives you the support to stay compliant without having to become a payroll expert yourself.