UPDATE: A recent court fulling “rolled back” the Fair Labor Standards Act. This blog is not current. Please contact us with questions regarding FSLA to ensure your business is compliant.
There are changes coming to the FSLA update for January 2025. Small businesses play a crucial role in driving local economies and providing unique products and services to communities. However, many small business owners may not realize the importance of complying with the Fair Labor Standards Act (FLSA) and how it can impact their operations.
In this blog post, we will discuss why small businesses need to pay attention to FLSA regulations and the implications of non-compliance.
What is the Fair Labor Standards Act?
The promise of the Fair Labor Standards Act’s (FLSA) is that American workers who work more than 40 hours in a week, have a higher level of compensation. The Department of Labor’s new overtime regulation is restoring and extending this promise for millions lower-paid salaried workers in the United States.
Small Business and Legal Compliance with FLSA:
The FLSA sets federal standards for minimum wage, overtime pay, recordkeeping, and youth employment. Small businesses that fail to comply with FLSA regulations may face costly penalties, fines, and lawsuits. By understanding and adhering to FLSA requirements, small businesses can avoid legal issues and protect their reputation.
Non-compliance with FLSA regulations can have significant financial consequences for small businesses. In addition to fines and legal fees, businesses may have to pay back wages, damages, and penalties to employees. By proactively addressing FLSA requirements, small businesses can avoid financial hardships and maintain long-term stability.
The Role FLSA Plays in Protecting Employees:
FLSA regulations are designed to protect the rights of employees, ensuring they receive fair wages for their work. Small business owners must pay attention to FLSA provisions to avoid underpaying employees, misclassifying workers, or violating overtime rules. By following FLSA guidelines, small businesses can create a positive work environment and foster employee loyalty.
Changes to FSLA in July of 2024:
In July 2024, the U.S. Department of Labor implemented significant changes to the Fair Labor Standards Act (FLSA) that primarily affected salary thresholds for overtime pay and employee classification.
Key Changes that Happened in July 2024:
Overtime Eligibility:
The new rule increased the standard salary level for exempt employees to $844 per week (approximately $43,888 annually). Employees earning below this threshold are now eligible for overtime pay. This threshold will increase to $1,128 per week starting January 1, 2025, and will be updated every three years starting in 2027 to reflect changes in the economy.
Highly Compensated Employees (HCE):
The total annual compensation threshold for HCEs was raised to $132,964 as of July 1, 2024, and will further increase to $151,164 in January 2025. Employees falling below this threshold will also be eligible for overtime.
Worker Classification:
The rules for classifying workers as independent contractors were revised. A new six-factor test was introduced, emphasizing a more holistic assessment of the worker’s relationship with the employer, making it more difficult to classify workers as independent contractors rather than employees.
What are the New Minimums for FSLA Coming in January 2025?
According to the DOL. The new salary threshold for white collar exempt employees will increase from $844 per week to $1,128 per week, or $43,888 to $58,656 per year in 2025.
Minimum total compensation threshold for highly compensated exempt employees: Increases from $132,964 to $151,164 per year in 2025.
How Are Salary Levels Adjusted:
The Department of Labor (DOL) has increased the minimum salary required for the EAP exemption from overtime pay every 5 to 9 years between 1938 and 1975. However, long periods between increases to the salary requirement after 1975 have led to an erosion of the “real value” of the salary threshold.
The “real value” is calculated based on the inflation of the dollar. This has caused an issue for workers because it has lessened the effectiveness of minimum salary requirements. There have also been changes to the labor market that have made it harder to identify exempt EAP employees.
Today, salary Levels automatically update every three years starting in 2027, using the current wage date to determine increases.
the Department of Labor has determined that its rulemakings over the past 20 years, since the Department simplified the test for the EAP exemption in 2004 by replacing the historic two-test system for determining exemption status with the single standard test, have vacillated between two distinct approaches: One used in rules in 2004 [4] and 2019,[5] that exempted lower-paid workers who historically had been entitled to overtime because they did not meet the more detailed duties requirements of the test that was in place from 1949 to 2004; and one used in a rule in 2016,[6]
The new rule will expand overtime protections for lower-paid salaried workers by ensuring they receive fair pay for long hours. The rule sets the standard salary level at the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region. Job duties will continue to determine overtime exemption status for most salaried employees.
What Employees Are Exempt from FSLA minimum Wage and Overtime Protections?
The Fair Labor Standards Act (FLSA or Act) requires covered employers to pay employees a minimum wage and, for employees who work more than 40 hours in a week, overtime premium pay of at least 1.5 times the employee’s regular rate of pay.
Some workers are specifically exempt from the FLSA’s minimum wage and overtime protections, including bona fide executive, administrative or professional employees. This exemption, typically referred to as the “EAP” exemption, applies when:
- An employee is paid a salary,
- The salary is not less than a minimum salary threshold amount, and
- The employee primarily performs executive, administrative or professional duties.
The employer bears the burden of establishing the applicability of the exemption. In addition, job titles and descriptions do not determine EAP exemption statuses. Additionally, just paying an employee a salary does not mean that they are EAP exempt. For small businesses it can be difficult to understand who qualifies for what. That is why you should never take on things like this alone. We are here to help.
What Happens if Your Small Business Is Found to be Non-Compliant with FSLA?
If a small business is non-compliant with the Fair Labor Standards Act (FLSA), it can face a range of consequences that can have serious implications for the business, its reputation, and its financial stability.
One of the most immediate consequences of FLSA non-compliance is financial penalties. The Department of Labor (DOL) can impose fines on businesses that violate FLSA regulations. These fines can vary depending on the nature and severity of the violations.
Non-compliant businesses may be required to pay back wages and damages to affected employees. This can include unpaid wages, overtime pay, liquidated damages, and other compensation owed to employees because of FLSA violations.
Non-compliance with the FLSA can lead to lawsuits filed by employees or the DOL. Defending against these lawsuits can result in significant legal fees and expenses for the business. In some cases, businesses may also be required to pay the legal fees of the employees who brought the lawsuit.
Businesses that are non-compliant with the FLSA may be subject to government audits and investigations. These audits can disrupt normal business operations, result in additional penalties, and require the business to take corrective actions to address violations.
Overall, non-compliance with the Fair Labor Standards Act can have far-reaching consequences for small businesses, impacting their finances, reputation, and legal standing. It is essential for small business owners to understand and adhere to FLSA regulations to avoid these negative outcomes and ensure a fair and compliant workplace.
How Can ClairtyHR Help Your Small Business with FSLA Updates for January 2025?
All small businesses should pay close attention to the FSLA update for January 2025 and follow regulations to ensure legal compliance. Not only does FSLA protect employees’ rights, but small businesses also gain a competitive advantage, maintain financial stability, and build trust and credibility. ClarityHR can help you with prioritizing FLSA compliance. Let us help you lay a strong foundation for success and sustainability in the long run.
Remember, if you have any specific questions or need further assistance regarding FLSA compliance for your small business, you can contact us here!
Additional Resources on the FSLA Update for 2025: