The Fair Labor Standards Act (FLSA) has undergone significant changes that will impact many industries, including Managed Service Providers (MSPs). These changes, effective from January 1, 2025, aim to expand overtime protections and ensure fair compensation for salaried workers. Although somewhat controversial, these updates are set to go into effect according to federal law. Here’s a detailed look at how these updates will affect MSPs.
Key FLSA Changes MSPs Need to Know for 2025
New Salary Threshold for Overtime Eligibility
Starting January 1, 2025, workers earning less than $1,128 per week (approximately $58,656 annually) will be eligible for overtime pay and can no longer be categorized as “exempt.” This is a significant increase from the previous threshold of $35,568 annually.
Impact on Managed Service Providers
Increased Labor Costs for MSPs
MSPs often employ a mix of salaried and hourly workers to manage IT services, support, and infrastructure. With the new salary thresholds, many employees who were previously exempt from overtime will now qualify for it. This shift could significantly increase labor costs as MSPs must decide whether to raise salaries or pay overtime for hours worked beyond 40 per week.
Exempt Status of Helpdesk Staff
There has been ongoing debate within the community about whether helpdesk staff qualify for “exempt” status under the “professional employee” designation. While many court cases have set a precedent that employees providing tech support are not considered “professional employees”, many MSPs continue to operate that way and categorize level 1 and level 2 staff as exempt. With the new salary threshold set at $58,656, it will become harder for MSPs to categorize level 1 and level 2 staff as exempt.
Operational Adjustments for MSPs
To manage these rising labor costs, MSPs may need to reassess staffing models. This could involve hiring more hourly workers, adjusting workloads, or investing in automation tools to reduce overtime needs. Ensuring compliance while optimizing workforce efficiency will be critical for navigating these changes.
Compliance and Administrative Burden
MSPs will face added administrative burdens as they update payroll systems and employee classifications to ensure compliance with FLSA changes. Properly tracking hours for salaried employees who now qualify for overtime is essential to avoid costly penalties.
Employee Relations
These changes could have mixed effects on employee morale. While some employees will benefit from increased pay due to overtime, others might face stricter controls on their working hours. Some might even feel they have been given a demotion when their employer switches them from salaried to hourly. Clear communication and fair implementation of the new rules will be crucial in maintaining a positive work environment.
Strategies for MSPs to Adapt
Review and Adjust Compensation Structures
MSPs should conduct a thorough review of their current compensation structures and make necessary adjustments to comply with the new thresholds. This may involve raising salaries or reclassifying employees to hourly non-exempt positions.
Enhance Workforce Management
Implementing workforce management tools can help MSPs optimize employee schedules and reduce overtime. These tools offer better insights into workload distribution, helping prevent excessive overtime costs.
Invest in Training and Development
Cross-training employees to handle multiple roles can provide flexibility, helping manage workloads more efficiently without the need for extra staff or overtime.
Leverage Technology
Cross-training employees to handle multiple roles can provide flexibility, helping manage workloads more efficiently without the need for extra staff or overtime.
Bottom Line for MSPs in 2025
By January 2024:
- Helpdesk staff that are salaried exempt need to be converted to hourly (or salaried) non-exempt as they don’t meet the “professional employee” criteria according to many recent court cases.
- Time tracking needs to be implemented for all employees that fall into the non-exempt category. This tracking must be accurate and should not be part of a ticketing system (which often uses overlapping time.)
- Employees that are exempt under the “highly compensated” criteria must meet a minimum salary threshold of $151,164.
Conclusion
The recent changes to the FLSA present both challenges and opportunities for Managed Service Providers. By proactively adjusting compensation structures, optimizing workforce management, and leveraging technology, MSPs can navigate these changes effectively. Ensuring compliance while maintaining employee satisfaction will be key to thriving in this new regulatory environment. Failure to address these issues could leave the company vulnerable to lawsuits and regulatory fines.
If you have further questions, reach out to your local labor attorney to ensure you get the right advice.
Need help navigating the new FLSA regulations? Let RedVine Operations guide you through workforce management and compliance strategies tailored for MSPs. Contact us today to ensure your MSP is prepared for 2025.