DOL Final Overtime Rule: What Employers Need to Know About Compliance

The U.S. Department of Labor’s final rule to restore and extend overtime protections marks one of the most substantial regulatory changes affecting payroll and wage practices in recent years. Effective July 1, 2024, and followed by scheduled adjustments on January 1, 2025, the rule expands eligibility for overtime compensation by raising the salary threshold, revising exemption standards, and establishing automatic future updates every three years tied to current earnings data.

For employers, this is not only a matter of updated salary levels. It introduces operational, financial, and compliance implications that must be addressed through accurate classification, system configuration, and proactive employee communication.

Understanding the Exemption Tests Under the Fair Labor Standards Act

Employees may be exempt from minimum wage and overtime requirements under the Fair Labor Standards Act (FLSA) only if they meet exemption criteria defined under 29 CFR part 541. To qualify under the executive, administrative, or professional (EAP) exemption, three conditions must be met:

• The employee is paid a salary, not hourly, and the amount does not fluctuate based solely on output or hours worked.

• The employee earns at least the specified minimum weekly salary level.

• The employee primarily performs duties categorized as executive, administrative, or professional under regulatory definitions.

There is also an alternative exemption for highly compensated employees (HCE). These employees must be paid a salary, meet a higher annual compensation threshold, and satisfy a reduced duties test.

The final rule raises both the EAP standard salary level and the HCE total compensation threshold. Employers must evaluate not only current salaries but the job duties associated with those roles to ensure classification remains defensible and compliant.

Scheduled Increases: July 2024, January 2025, and Beyond

The final rule introduces:

• Higher salary thresholds effective July 1, 2024.

• Additional increases effective January 1, 2025, based on methodology changes.

• Recurring updates every three years, tied to available earnings data.

The three-year update mechanism is significant. It eliminates long periods of unchanged thresholds and reduces uncertainty around regulatory cycles. Employers should expect compensation planning, budgeting cycles, and payroll systems to integrate automated or forecasted adjustments.

Operational Impact for Payroll, HR, and Finance Teams

The regulatory change affects more than wage calculations. It influences labor budgeting, job architecture, variable pay planning, and employee relations. The most common areas where organizations will feel the impact include:

Classification and job design

Roles that previously met exemption criteria may no longer qualify based solely on salary. Employers must review duties, not just pay levels, to avoid misclassification risks.

Overtime forecasting and cost visibility

More employees becoming overtime eligible increases financial exposure. Finance and HR should collaborate to model the cost of:

• Reclassifying workers as non-exempt

• Adjusting salaries to maintain exemption

• Managing workloads to reduce overtime hours

Payroll system configuration

Threshold changes affect:

• Salary basis validation

• Overtime rules

• General ledger mapping

• Time and attendance inputs

• Paid leave accrual calculations

Failure to configure system logic to reflect new thresholds can result in retroactive corrections, compliance penalties, or employee disputes.

Communication and change management

Pay and exemption statuses are highly sensitive topics for employees. Clear communication protects culture, preserves trust, and reduces the risk of confusion or perceived demotion if a role shifts to non-exempt status.

How Paid Helps Employers Adapt to Regulatory Change

Paid supports payroll compliance by aligning technology, expertise, and governance practices with evolving labor standards. Our focus is not only on processing payroll accurately, but on helping employers structure systems and processes that withstand regulatory changes.

Compliance configuration and oversight

Paid monitors regulatory updates and supports implementation within payroll systems. This reduces manual intervention and shortens the risk window between rule adoption and payroll impact.

Accuracy and calculation integrity

Overtime calculations must account for bonuses, stipends, and nondiscretionary pay components. Paid’s platform executes these calculations correctly and consistently, reducing exposure to wage claims and rework.

Notifications and implementation timelines

Proactive alerts allow employers to prepare for threshold changes and operational impacts before they occur, rather than react afterward.

Support tailored to organizational needs

Compliance looks different for a 40-employee company than a distributed workforce with multiple pay structures. Paid provides guidance based on how your organization is structured, not a generic standard.

The Cost of Inaction

Misclassification, incorrect salary basis determination, or inaccurate overtime calculations can lead to penalties, audits, and reputational damage. With scheduled updates every three years, compliance must be viewed as an ongoing function supported by technology and clear processes.

Payroll is both a financial system and an employee-experience system. When handled correctly, it reinforces trust. When handled poorly, it creates organizational risk.