The Department of Labor (DOL) on Tuesday increased the salary thresholds for the Fair Labor Standards Act (FLSA) white collar exemptions from overtime pay requirements. On July 1, the minimum annual salary threshold for an exempt employee will be $43,888 ($844 per week), up from $35,568 ($684 per week). This threshold will increase to $58,656 ($1,128 per week) on Jan. 1, 2025. To qualify for the FLSA’s highly compensated employee exemption, employees will now have to earn $132,964 per year effective July 1, and $151,164 per year effective Jan. 1, 2025.
The DOL, in its 383-page final rulemaking, contends that these new salary thresholds will help make it clearer to employers which jobs qualify as exempt. Ultimately, the DOL anticipates that these salary changes will result in almost two million previously exempt employees now receiving overtime.
Not every employer will be able to sustain what amounts to a 65% increase in expenses to meet baseline compensation requirements over this six-month period. The implications are much more significant than just the wages of the impacted employees, however, because an increase to one layer of compensation can create a ripple effect through all employee compensation, resulting in increased cost to the business.
What Employers Can Do
With a little more than two months until the $43,888 threshold goes into effect, there is much for human resource professionals to consider. The best starting point is a review of the duties of those employees who earn salaries below the new thresholds to determine whether they qualify for the exemption based on their duties. An employer can then increase the salary to meet the new threshold once it is comfortable that the employee is performing exempt duties.
An employer also can choose to reclassify the role as non-exempt, which will require the tracking of hours and the payment of overtime. For a job that was considered exempt, it is incumbent upon the employer to figure out quickly how many hours per week the employee generally works and if there are times in the year when the employee work hours vary. This will allow the employer to understand the anticipated overtime costs and budget for the total cost of a non-exempt designation.
HR professionals also need to consider the messaging of any changes and the impact on morale for those who will be moved to non-exempt status. There are strategies to help ease the move to non-exempt, including the continued use of a salary for the non-exempt employee. However, employees’ hours will still need to be tracked, and additional compensation must be paid for all overtime hours. Determining which hours qualify for overtime and the overtime calculation when using a salary for a non-exempt employee can be complicated, requiring a calculation of the overtime rate on a weekly basis, and will differ by state.
Miles & Stockbridge’s labor and employment lawyers routinely assist employers with FLSA matters.
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