In April, the U.S. The Department of Labor (DOL) released a new overtime rule that will raise the salary threshold for overtime pay eligibility by approximately 65 percent by 2025.

Background

The Fair Labor Standards Act (FLSA) guarantees a minimum wage on the federal level and limits the number of hours (40) an employee can work per week without additional compensation.

How Will This New Overtime Rule Impact Employees?

Currently, employees making less than $35,568 per year must be paid overtime. Under the new rule, the overtime threshold will increase in two steps*:

  • On July 1, 2024, salaried workers making less than $43,888 will become eligible for overtime pay.
  • On January 1, 2025, those making less than $58,656 must be paid overtime.

Then, the salary threshold will increase every three years.

The downside for employees: Essentially, millions of additional workers will become eligible for overtime pay. Although providing access to overtime pay for more workers sounds good in theory, research by economist Stephen Trejo indicates the following:

  • Some companies find themselves forced to implement downward pay adjustments in order to offset increased overtime pay.
  • Many salaried employees will not see additional pay since work schedules may be reconfigured so employees work less than 40 hours per week.
  • Those working more than 40 hours per week may be laid off or find fewer opportunities for advancement.

How Will This New Overtime Rule Impact Franchise Owners?

The new overtime rule will impact more than 3.5 million workers by January 2025.

The rule will likely force franchise owners to reclassify many exempt employees and begin paying overtime to employees who have previously been ineligible. Some owners may find themselves forced to issue unrealistic and unsustainable salary pay increases to avoid overtime pay.

Next Steps for Franchise Owners

It’s important for franchise owners to understand that noncompliance with this new rule can expose the franchisee to significant liability, including unpaid overtime and the costs of undergoing a DOL investigation and/or a lawsuit.

Franchise owners should prepare to either provide employees with raises or reclassify the employees as non-exempt prior to July 1, 2024.

To make a well-informed choice, franchise owners should consider a variety of items, including, but not limited to:

  • Scenario modeling (e.g., employers who choose to reclassify employees as non-exempt must take into account operational, training, and compliance costs)
  • Whether the duties test can make a difference
  • Methods of overtime calculation and timekeeping
  • Impact on employee benefits
  • Communication with their workforce about the anticipated changes to compensation, benefits, etc.

Learn More

Navigating compensation structures and the impact of the FLSA regulation can be complex.

Contact the PBMares franchise group today to learn more about how franchise owners can help your franchise navigate the rule change, ensure compliance, and make well-informed decisions about how to proceed.

Our team can also help turn this challenge into an opportunity to evaluate how work is being performed at the franchise and ensure duties are being assigned in the most efficient manner.

Source: https://www.nfib.com/content/legal-blog/labor/what-dols-new-overtime-rule-means-for-your-business/