New Overtime Rules Become Effective 7/1/24

May 1, 2024 | Finconomics 101, No Bull Economics

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The Department of Labor’s new overtime regulation dramatically increases the pool of employees eligible for overtime pay (1.5x regular hourly wage rate). While this regulatory change adds to the burden of small businesses following in the path of California’s new minimum wage rate hike for fast food workers to $20/hr., there is a calculus that owner/operators can currently pursue to minimize its intended negative impact.  

The Calculus of the New OT Rules

  • The Fair Labor Standards Act (FLSA) states that nonexempt, covered employees must receive overtime pay for hours worked in excess of 40 in a workweek at a rate not less than 1.5x their regular rate of pay.
  • Currently, an exempt employee who is paid a salary over $35,568/year can be asked to work for more than 40 hours/week as a manager for instance. If this employee works a total of 2,250 hours/year (50 weeks x 45 hours/week), this implies an hourly wage rate of $15.81.
  • Under the new rules, this same exempt employee must be paid an annual salary of $43,888 (+23% raise) if they will be asked to work over 40 hours/week during 2H24 otherwise, their employer can continue to pay a $35,568 salary but can only require 2,000 hours of annual labor ($17.78/hour = +12.5% raise). This math only works during 2H24 & then things get silly by the start of 2025 (see table below). If the employer needs more than 40 hours/week from this manager, they will have to pay OT but the question is what will the manager’s hourly wage rate be?
  • In the case of the above scenario, the employer could offer a $16/hour rate which would equate to a total pay of $38,000 (2,000 regular hours x $16/hr) + (250 OT hours x $24/hr). This generous +7% raise represents a rational compromise & would likely be most welcomed by reasonable employees.
  • Of course, all bets are off if the Feds follow California’s lead by raising the minimum wage to an unsustainable level…

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