New Overtime Rules Starting July 1st
On April 23, the U.S. Department of Labor (DOL) issued its Final Rule to increase the minimum salary requirements for the “white collar” exemptions (executive, administrative, and professional) from minimum wage and overtime pay requirements under the Fair Labor Standards Act (FLSA). Changes are slated to take effect July 1, 2024.
The Final Rule increases the minimum salary level in order to classify a position as exempt. The duties portion remains unchanged. The increase will take effect in two stages and thereafter, the salary thresholds will be updated every three years to reflect current earnings data, beginning July 1, 2027.
The current minimum salary level of $684 per week ($35,568 per year) will increase on the following schedule:
July 1, 2024: $844 per week ($43,888 annually)
Jan. 1, 2025: $1,128 per week ($58,656 annually)
The highly compensated exemption (HCE) total annual compensation level will increase from $107,432 per year to:
July 1, 2024: $132,964 per year
Jan. 1, 2025: $151,164 per year
What does this mean for your workplace?
Employees making less than the minimum salary level, can be eligible for overtime if they work more than 40 hours in a workweek (NOT a pay period). As a reminder, to be exempt from overtime under the FLSA's, employees must be paid a salary of at least the threshold amount and meet certain duties tests.
Employers need to look at the salaries of exempt employees and perform an analysis of how to proceed:
One option is to raise the salary of employees whose salaries fall between the current minimum level ($35,568 per year) and the new one ($43,888).
Another is to reclassify those positions as non-exempt and be prepared to pay employees overtime if they work more than 40 hours in a workweek.
Any employees whose current salary meets the new minimum level are unaffected, they will remain exempt. The minimum salary level applies to any employee who is classified as exempt without regard to the actual number of hours they work or their full-time equivalent (FTE). Yes, that employee who works 32 hours a week must be paid the minimum salary amount. You cannot prorate their salary (i.e., 40 hours * .8) to arrive at an adjusted minimum salary threshold based on their .8 FTE.
Keep in mind that this same analysis (and possible changes) will happen again in anticipation of the minimum standard increasing again (to $58,656 annually) on January 1st, 2025. It may be advantageous to make these changes in two steps, or it may be advisable to make the changes needed to comply with the January 1st, 2025 standards in the coming months.
Additionally, employers need to anticipate and prepare for communicating this information to employees to help them understand how changes will impact them. They also may need to look at their salary ranges for other positions to strive to create internal parity and avoid salary compression between supervisors and exempt employees they supervise.
The changes required by the Final Rule will impact different employers differently, but all employers can take this opportunity (if you will) to examine compensation practices and also make sure all exempt classifications are accurate.
Confused? Not sure what this really means for your organization? Watch for webinars and other resources that help explain these changes. If you need to know more about how to classify a position as exempt or non-exempt check out our free resources page. Want personalized assistance? Contact us…we are here to help.