As the Department of Labor’s (DOL) new salary threshold for certain exempt employees is set to soon go into effect, millions of additional workers will become eligible for overtime pay. Employers must act quickly to ensure their pay practices comply with this significant change.
According to the federal Fair Labor Standards Act (FLSA), employees typically receive an overtime premium of 1.5 times their regular pay rate for hours worked beyond 40 in a workweek, unless they qualify for an exemption.
What is the DOL's Proposed Salary Threshold?
The current salary threshold for exempt employees, falling under white-collar exemptions, is $684 per week ($35,568 per year). On April 23, 2024, The DOL proposed a rule to increase this threshold. First, it would increase to $844 per week ($43,888 annually), followed by an increase to $1,128 per week ($58,656 annually). If you have exempt employees earning less than the new thresholds, these notable increases will need thoughtful planning.
The DOL’s new rules regarding the exempt salary threshold, often referred to as the "federal overtime rules," do not actually change existing overtime laws or introduce new ones. Instead, the DOL aims to expand the number of employees eligible for overtime pay. To achieve this, the DOL has revised regulations to raise the minimum salary requirement for white-collar exemptions.
What Are White-Collar Exemptions?
White-collar exemptions refer to categories under the Fair Labor Standards Act (FLSA) that exempt certain employees from overtime pay requirements based on their job duties and salary level. These exemptions typically apply to executive, administrative, and professional employees who perform specific types of work.
Christine Ramos, Director, Client HR Services at CoAdvantage, states “Employers will need to act swiftly to prepare for the upcoming increases, which will be implemented in two phases. The first phase will take effect on July 1, 2024, followed by the second phase on January 1, 2025. Planning may be complicated due to this two phase approach but developing an efficient strategy of reviewing your employees and properly communicating and implementing it will be key to being successful during this transition."
Here are 10 essential steps employers can take to effectively navigate the DOL’s final proposed minimum salary thresholds:
1. Anticipate and Prepare for Significant Changes
The salary threshold for exempt employees is rising from the current $35K to about $44K on July 1, 2024 and will jump to nearly $59k at the start of 2025. The rule automatically updates every three years beginning on July 1, 2027. Moreover, the threshold for the "highly compensated employee" (HCE) exemption will increase as well. It is crucial to understand the impact of the proposed salary thresholds on your business and develop a plan to adapt to these changes effectively.
2. Review Pay Practices for Compliance
Thoroughly reviewing your pay practices to ensure compliance with all criteria, not just the salary threshold, is crucial. Meeting the requirements for white-collar exemptions involves more than just meeting the standard salary level. Here is criteria these exemptions must meet:
- The employee is paid on a salary basis
- The salary meets or exceeds the designated minimum weekly salary
- Perform duties that correspond to their exemption category
3. Determine the Status of Employees within Salary Threshold
Create a list of exempt employees who currently earn between $35,568 and $58,656 a year and decide whether to raise their salary to meet the new threshold or convert them to non-exempt status. Consider the impact of reclassifying employees to non-exempt status and weigh the impact on morale when making the decision.
4. Assess the Impact on Employee Morale
Reclassifying employees to non-exempt status could have a negative impact on morale, so communicate proactively and be prepared to answer questions. Ensuring transparency and clear communication can help in managing the impact on employee morale.
5. Plan and Communicate Changes in Advance
Give each employee written communication detailing the specific changes to their compensation and the new responsibilities accompanying them. Giving advance notice and explaining the reasons behind the changes can help in minimizing uncertainty and anxiety among employees.
6. Evaluate Policies on Company Equipment and Personal Devices
Ensure that your policies clearly define acceptable working hours, appropriate time recording methods, and the accurate recording of all hours within a workweek. Ensure that your policies are comprehensive and in compliance with the new regulations.
7. Develop a Training Plan for Managers and Newly Non-Exempt Employees
Provide detailed training to newly reclassified employees and their managers prior to the changes taking effect. Proper training can help in ensuring that both employees and managers understand their new roles and responsibilities in light of the changes.
8. Verify Exempt Employees Meet the Duties Test
Ensure that exempt employees' primary job duties meet both state and federal wage and hour law requirements. It's crucial to verify that employees classified as exempt are indeed performing duties that qualify them for exemption.
9. Consider Applicable State Laws
Other jurisdictions might have stricter or different rules about pay and working hours. For example, some states have higher salary limits for certain job exemptions than the new thresholds under the FSLA. Others might have their own rules with exemptions or no salary limits. It's essential to review and understand the specific regulations applicable to the states where your employees are located.
10. Stay Informed on Legal Challenges
Business groups or states opposing the final rule may file litigation, so employers should prepare as if the final rule will take effect but continue to monitor any legal challenges. It's important to stay abreast of any legal developments and adapt your compliance strategy accordingly.
Ensuring compliance with the new federal overtime rules is essential for employers. By taking proactive steps and being prepared for the upcoming changes, employers can effectively navigate the transition and minimize potential disruptions to their business operations and workforce.
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If you find yourself in need of extra HR support to navigate the fast-paced and constantly changing regulations that govern businesses, CoAdvantage is here to help. Our team of experienced professionals can offer valuable guidance and assistance, ensuring that you are well-prepared for the upcoming changes in federal overtime rules and remain compliant with the latest regulations. Get in touch with us today to discover how CoAdvantage can help provide the necessary support your business needs to effortlessly navigate the complexities of HR regulations.