The U.S. Department of Labor (DOL) has elevated the “white-collar” exemption salary threshold from $35,000 to approximately $43,888 starting July 1, and it will escalate to nearly $58,656 by the beginning of 2025. Employees must meet or exceed these thresholds to qualify for exemption from overtime pay under these criteria.
Despite the anticipation of legal pushbacks, relying on judicial intervention before the implementation dates is risky. Immediate preparation is advisable.
Here are the critical steps to consider before these changes take effect.
Prepare for Major Updates in Overtime Eligibility
The DOL has announced increases to the salary threshold for employees exempt under the white-collar exemptions. This includes those classified under the administrative, executive, and professional categories. Presently, the threshold sits at $684 weekly ($35,568 annually). The new regulations will elevate this on July 1, 2024 to $844 weekly ($43,888 annually) and subsequently on January 1, 2025 to $1,128 weekly ($58,656 annually). These updates necessitate immediate attention from employers with exempt employees earning below these new thresholds.
Key Amendments Accompanying the New Salary Threshold
- An automatic update to the salary threshold every three years, starting July 1, 2027.
- An increase in the salary threshold for the highly compensated employee (HCE) exemption, moving to $132,964 on July 1, then to $151,164 on January 1, 2025. This adjustment surpasses the initial proposals and marks a significant rise from the current $107,432. Similar to the standard exemption, the HCE threshold will also undergo triennial reviews.
Ensure Compliance with Pay Practices
Beyond the salary threshold, white-collar exemptions are subject to additional criteria. For an employee to qualify, they must:
- Receive a salary basis pay.
- Earn at least the minimum weekly salary as specified.
- Fulfill certain job duties.
How to Adapt
To adapt to the imminent changes in federal overtime regulations, begin by identifying exempt employees earning between $35,568 and $58,656 annually. You’re facing two choices: increase their salaries to surpass the new thresholds or reclassify them as non-exempt. Assess their current hours worked to gauge the impact of reclassification and ensure your decision is well-informed.
Deciding on Reclassification
If you choose to reclassify employees to non-exempt status, consider these key factors:
- Determining Hourly Pay: Decide whether to set the hourly rate by dividing the weekly salary by 40 or adjusting based on estimated overtime.
- Understanding Regular Rate: The regular rate, which forms the basis for overtime pay, encompasses all earnings except for specific exclusions. It’s broader than just an hourly wage, including bonuses, commissions, and other compensation types.
- Incentive and Bonus Considerations: Non-discretionary bonuses must be included in the regular rate calculation. These bonuses, often tied to specific performance metrics, are predetermined and not considered discretionary.
- Recording Work Hours: Transitioning to non-exempt status necessitates accurate work time tracking. Plan workflow adjustments and technology implementations to comply with recordkeeping requirements efficiently.
- Adjusting Benefits: Address how benefits policies will change with the shift from exempt to non-exempt status. This includes revising vacation and sick leave policies and educating both employees and supervisors on the new procedures.
Addressing Employee Morale and Compliance
Raising all affected employees’ salaries to meet the new federal overtime thresholds might not be feasible. However, moving employees to non-exempt status can affect morale. Many view exempt status as a mark of prestige, valuing the associated flexibility and not having to track hours worked. This sensitivity is particularly acute among managers required to clock in alongside their team members. Despite potential unchanged total pay, this reclassification could be perceived as a demotion.
When considering these changes, it’s crucial to assess the impact on team spirit. Engage in proactive dialogue with your team, preparing to clarify the rationale behind opting for reclassification over salary adjustments. Supporting your decision with market salary data can lend credibility and transparency to your approach.
Communicating Changes Effectively
Preparing clear, thoughtful communication regarding compensation changes and new responsibilities like timekeeping and mandated breaks is essential. Be aware of any state-specific requirements for advance notification of wage adjustments. Regardless of local laws, outlining the new terms proactively ensures clarity and assists in the transition.
Ensure Compliance and Clarity in Device Usage Policies
Review your current policies on company equipment and the use of personal devices for work, especially as they apply differently to exempt versus non-exempt employees. Typically, exempt staff might enjoy broader freedoms, including using company or personal devices for work-related tasks at their discretion. This flexibility often extends to working remotely or during travel.
For non-exempt employees, limitations might be in place to prevent off-the-clock work. It’s crucial to enforce these policies uniformly, ensuring reclassified employees understand their updated obligations. Ensure your policies clearly define acceptable work hours, accurate timekeeping, and the necessity of recording all hours worked.
Implement Comprehensive Training for Managers and Staff
It’s essential to develop a thorough training program for both managers and newly non-exempt employees, well ahead of implementing these changes.
Training should encompass various critical areas, including but not limited to:
- Adherence to scheduled hours
- Procedures for Overtime Approval
- Accurate timekeeping methods
- Requirements for recordkeeping
- Guidelines for meal and rest breaks
- Use of personal devices for work
- Strict prohibition against working off the clock
Verify That Exempt Employees Satisfy the Duties Test
Remember, job titles and descriptions don’t solely determine exemption status under the white-collar category or any other. To qualify, an employee’s primary job responsibilities must align with state and federal wage laws.
Here’s a concise breakdown of federal duties requirements for white-collar exemptions (assuming salary criteria are met):
- Executive Exemption: Managing the enterprise or a recognized department, directing at least two full-time employees, and having significant input on hiring decisions.
- Administrative Exemption: Performing office or non-manual tasks critical to business operations, requiring discretion and independent judgment on significant matters.
- Professional Exemption: Engaging in work that demands advanced knowledge, predominantly intellectual, needing consistent discretion and judgment, acquired through extensive specialized education.
Assess State Law Variations
Different states may enforce higher standards than the FLSA’s upcoming thresholds of $844 weekly (from July 1, 2024) and $1,128 weekly (starting January 1, 2025). This could include variations in salary thresholds, exemptions, minimum wage rates, and overtime regulations. Pay close attention to state-specific rules regarding wage payments, deductions, and pay term notifications, as these can differ significantly from federal guidelines.
Monitor Legal Developments
Anticipate legal actions from business entities or states aiming to challenge the new rule, potentially seeking injunctions in jurisdictions perceived as business-friendly. This scenario mirrors the 2016 attempt by the Obama administration to increase the salary level, which was halted by a Texas court ruling days before its enactment. Critics of the new rule might leverage arguments questioning the DOL’s authority to set salary standards, referencing judicial opinions like Justice Kavanaugh’s dissent in the Helix Energy case, challenging the alignment of salary requirements with the FLSA.
Staying abreast of these developments is crucial for ensuring your compliance strategies remain effective and adaptable to changing legal landscapes. But you can’t count on the rule being halted given the uncertain nature of litigation. You need to prepare as if the final rule will take effect as planned.
Consider Working With A Skilled Consultant Specializing in Labor Law and HR Compliance
The new salary threshold requires a precise strategy for compliance, employee classification, and policy updates. With my employment law and HR expertise, I am the right partner to guide your business through this change. I provide customized consulting services and strategies to help your company comply with regulatory requirements, while achieving your business growth goals.
Avoid being caught off guard by changes in employment law. Choose me for straightforward, actionable advice that protects your business and aligns with your objectives.
Contact me to get started!
