Here we go again – will your business be ready for the new FLSA salary thresholds?
On April 23, the Department of Labor (DOL) announced the final rule that increases the exempt salary threshold for employees under the Fair Labor Standards Act (FLSA). While the changes are likely to face legal action, employers should not take a “wait and see” approach. Employers need to make sure they are prepared to take action with impacted employees to ensure compliance.
The changes are coming quickly and employers need to be ready for not only this immediate change but also ongoing, regular updates in the coming years. Starting in July, most salaried workers earning less than $844 per week ($43,888 per year) will become eligible for overtime pay under the final rule. And on Jan. 1, 2025, most salaried workers making less than $1,128 per week ($58,656 per year) will become eligible for overtime pay. On July 1, 2027, and every three years following, the salary threshold will be increased. The total annual compensation threshold for highly compensated employees (HCEs) is also impacted by these changes.
| Effective Date | Salary Threshold | HCE Total Annual Compensation Threshold |
| Prior to July 1, 2024 | $684 per week ($35,568 per year) | $107,432 per year, including at least $684 per week paid on a salary fee basis |
| July 1, 2024 | $844 per week ($43,888 per year) | $132,964 per year, including at least $844 per week paid on a salary or fee basis |
| January 1, 2025 | $1,128 per week ($58,656 per year) | $151,164 per year, including at least $1,128 per week paid on a salary or fee basis |
| July 1, 2027, and every 3 years thereafter | To be determined by applying the methodology used to set the salary level in effect at the time of the update | To be determined by applying the methodology used to set the salary level in effect at the time of the update |
Employers must now decide whether or not to raise the salary of those employees whose weekly rate falls below the new threshold effective July 1, 2024, and ultimately Jan. 1, 2025, to preserve their exempt status. Alternatively, employers can leave employees’ salaries as they are, but must be prepared to pay overtime to these individuals when they work more than 40 hours per week (or, according to other rules as dictated by state and/or collective bargaining agreements).
It is also important to keep in mind that exemption status is not just about the salary paid. Employers should be validating the classification of their position using the job duties tests as well. There are several specific exemptions that may be applicable, but it is the responsibility of the employer to make sure all test requirements are met. The most common exemptions include executive, administrative, professional, computer employee, outside sales, highly compensated and blue collar.
Changes to an employee’s salary and/or exemption status can have long-reaching effects within the organization. To prepare for these changes, employers should consider the following questions, if they apply and how they will address them within their organization:
1. Are your job descriptions current and are you confident that your employees’ exemption statuses are accurate and meet the salary threshold, salary basis and job duties tests?
2. What steps should you take to ensure compliance with the new regulations and to be prepared for additional changes in the future?
3. How should you calculate pay for impacted employees?
4. Do salary thresholds include overtime or variable pay amounts?
5. Will you raise the salary of those employees whose salary falls below the new overtime threshold to preserve their exempt status?
6. Will you choose to reclassify employees as non-exempt if their salaries do not meet the new overtime threshold?
7. Have you considered how increasing the salaries of certain exempt employees might impact their managers and/or peers in the organization?
8. Are you prepared to deal with potential salary compression issues that are created because of adjustments?
9. How are you tracking non-exempt employee hours worked, and will this practice still be possible under the new rules?
10. Do the FLSA salary threshold changes affect employee benefits?
11. Is the use of company-issued devices by non-exempt employees during non-work hours impacted by the FLSA salary threshold changes?
12. How will you communicate changes to employees and management?
13. Are you prepared to answer questions regarding a change in status from exempt to non-exempt especially if the employee’s position has always been classified as exempt?
14. Are you prepared to answer questions regarding a change in status from non-exempt to exempt and the loss of overtime eligibility?
Compensation materials should be carefully crafted and rolled out to explain exemption status changes to employees. Creating a list of frequently asked questions is highly recommended. Employers should also be prepared for potential challenges regarding a classification change. Of course, it’s easy to say the changes are being made based upon the DOL’s final rule, but in reality, you need to have a more detailed explanation to help employees understand the whole picture. It’s never too early to be prepared. Start putting together plan A, B and C today!
