New overtime pay rules start July 1. Employers say that’s too soon

Employers are pushing back and asking for more time before implementing new federal overtime rules that will require them to pay overtime to more workers.

The new Department of Labor rules take effect in two stages. Normally, employers can opt not to pay their salaried, white-collar employees “time and a half” for overtime hours worked, provided those employees make at least $35,568 a year. But beginning July 1, that salary threshold jumps to $43,888 a year. And Jan. 1, 2025, that figure jumps again to $58,656, meaning many administrative workers are likely to qualify.

The rule change, finalized April 23, has unleashed a parade of complaints from businesses objecting to the degree of the salary hikes and the short implementation deadline. But Department of Labor heads insist the salary updates are necessary because it has been years since any adjustments.

Updates usually happened “every five to nine years between 1938 and 1975. (But) long periods between increases to the salary requirement after 1975 have caused an erosion of the real value of the salary threshold, lessening its effectiveness in helping to identify exempt executive, administrative and professional employees (EAP),” Labor officials announced last month.

While several business groups bemoaned the change, employment advocates and job placement experts applauded the update, saying it was long overdue, given inflationary pressures on wage-earners. Becca Lopez, who heads the employment services division of the Minneapolis-based nonprofit Avivo, said the changes “will provide relief for so many families.”

“At Avivo, we are seeing that the increased cost of living continues to impact lower-paid workers significantly, and it is not uncommon that we see people taking on second and sometimes third jobs to make ends meet,” she said. “Add into that uncompensated overtime for those in salaried administrative, sales, or other professional roles, and there just aren’t enough hours in the day. Compensation for all hours worked will substantially reduce the number of jobs people have to hold to sustain their families.”

Still, employers say they are not happy.

During a May 9 hearing at the U.S. Senate last week, acting U.S. Department of Labor (DOL) Secretary Julie Su said the rule’s two-step phase-in intends to give businesses ample time to prepare for the new rule. Some senators and business groups at the hearing, however, pushed back, arguing it wasn’t enough time, and the new overtime rule could create financial and administrative hardships for businesses.

“This is an arbitrary and burdensome timeline for the regulated community to meet, especially smaller businesses that do not have the resources to make such changes quickly. … The undersigned organizations urge you to extend the implementation date as quickly as possible,” read a letter from the Partnership to Protect Workplace Opportunity, a collection of 87 business groups and industry associations, sent to Congress and DOL.

Signers included the such groups as the National Retail Federation, National Restaurant Association and American Trucking Association as well as scores of others associations representing builders, bankers, beer wholesalers, farm co-ops, colleges, travel agents and more.

All insisted they need more time to digest the payroll changes and implement the new law.

The Labor Department’s “Wage and Hour Division is providing the regulated community with only two months to analyze the rule, determine what changes to their operations and payrolls will be necessary, explain to the impacted workers how and why their pay, titles or workplace responsibilities will change and then implement those changes,” the Partnership’s letter complained.

Krysta Kaner, president of the Twin Cities Society for Human Resources Management, said she expects only small and rural Minnesota firms to feel the pinch of the July 1 rule change because minimum wage hikes have already swept across much of the Twin Cities.

It’s the second rule change slated to begin Jan. 1, 2025 that will probably impact many more companies, no matter their size or where they reside in the state.

“That jump to that new $58,656 (salary threshold) in January will be pretty big,” Kaner said. “Employers need to do an impact analysis on where are the people who will be impacted by this legislation and then put together a plan to address that. They need to figure out if they need to convert people to hourly [pay] instead of salary. And if they do convert them to hourly, they need to communicate that with mangers and employees and share why.”

The change is so significant, some small Minnesota employers voiced concerns about the impacts of the federal law change before its adoption. Now many are racing to review payroll and timecard systems, talk with legal counselors and further studying the Fair Labor Standards Act to see if other “tests” besides salary might impact which employees qualify for overtime pay and which are exempt, Kaner said.

Lori Tapani, co-owner of Wyoming Machine in Stacy, Minnesota, said her company sticks to the strict Fair Labor Standards Act definitions and thus has few overtime-exempt employees or salaried workers. As a result, most employees are hourly and entitled to overtime pay.

Tapani said she also found few of her customer service representatives and other white-collar workers want overtime.

“Everyone is interested in getting work-life balance,” and so most avoid overtime shifts, Tapani said. “We won’t be impacted by this ruling.”

Given the complexities of the law, the national 300,000 member Society of Human Resource Management (SHRM) suggested last week the DOL put off implementing any rule changes until January. A January timeline would help “employers to tie any classification or pay-related changes into budgeting efforts and operational changes for the new year,” wrote SHRM Chief of Staff and Government Affairs head Emily M. Dickens.

“Employers with exempt employees making less than the new minimum salary requirements for exempt workers will need to decide whether to raise salaries or reclassify employees as nonexempt,” Dickens’ counseled this week in a separate bulletin to SHRM members. “HR should consider the economic and morale impacts of reclassification.”

SHRM warned the new overtime rules could prompt lawsuits.

St. Paul Chamber of Commerce President B. Kyle said the new federal changes come at a stressful time for employers.

“Employers have had a difficult few years, from the pandemic to labor shortages to navigating return-to-office policies. Add on top of that, numerous new state and federal regulations related to sick and safe time, paid leave and wages and benefits,” Kyle said. “I say all this to note the challenging environment the employer community is experiencing.”