Keeping up with payroll – and all the nuances that entails – is often tricky for any business owner. But add in frequently changing rules regarding wages and overtime, and it can get challenging. And if you have locations or employees in multiple states and need to keep up with the rules for each, it can get downright exasperating.

Yet it is important to keep up with the rules no matter how frustrating they are. It is with that in mind that we wanted to let you know about the U.S. Department of Labor's recent overhaul of the Fair Labor Standards Act (FLSA). Business owners with operations solely in Washington already meet the qualifications of these new rules since the Department of Labor & Industries implemented changes on January 1, 2024 that exceed these new ones from the DOL. However, for businesses with operations in other states, these new DOL rules introduce significant changes to overtime exemptions that you need to understand.

Under these new rules, the salary thresholds for exempt employees rise sharply: to $43,888 on July 1, 2024, and again to $58,656 on January 1, 2025. This adjustment impacts more than 4 million workers, which means small business owners with operations or employees outside of Washington need to do a careful (and quick) review of their payroll strategies.

For small business owners and managers, particularly those without dedicated HR departments or payroll specialists, understanding and adapting to these changes is crucial. The initial step is to identify any employees that currently fall under the "white-collar" exemptions (executive, administrative, and professional) and determine if their salaries will meet the new thresholds. If they don't, you must decide whether to increase salaries to maintain exemption status or reclassify employees as non-exempt, thus making them eligible for overtime. Keep in mind this is more than solely a financial decision – changing employee status can affect morale and workplace dynamics too.

The rationale behind these updates is to align national salary thresholds more closely with current economic realities, aiming to boost compensation for lower and middle-income workers. This near 65% increase from previous levels suggests a shift towards enhancing worker compensation and ensuring fair labor practices.

To effectively manage these changes, multi-state business owners should:

1. Review Employee Salaries: Audit your current payroll to identify which employees may be affected by the new thresholds.

2. Assess Financial Impact: Consider the cost implications of either increasing salaries to maintain exempt status or managing additional overtime payments.

3. Communicate Changes: Keep your team informed about how these changes will affect their pay structure or employment classification.

4. Update Payroll Systems: Adjust your payroll administration to accommodate these changes, ensuring compliance with the new rules.

Moreover, the DOL’s final rule introduces an automatic adjustment mechanism every three years, ensuring that the salary thresholds keep pace with inflation and economic changes. This calls for ongoing attention and flexibility in financial and human resource planning.

As these changes approach, proactive planning and open communication will be key. If you're a business owner with employees or operations in multiple states that needs assistance navigating these updates, adjusting your financial strategies, or managing your payroll, don’t hesitate to reach out to us for advice and assistance. Ensuring compliance not only avoids legal pitfalls but can also enhance employee satisfaction and retention.