WHAT YOU DON’T KNOW CAN HURT YOU!
NEW INCREASED SALARY REQUIREMENTS TOOK EFFECT JULY 1, BUT THE BIG ONE GOES INTO EFFECT JANUARY 1, EMPLOYERS GET READY!
What you need to know! The minimum required salary for exempt (also known as “salaried” in many companies) employees increased July 1 from $35,568 ($684/ week) to $43,888 ($844/week) per the Department of Labor’s recently issued Final Rule.
This is just the beginning, with another unprecedented hike scheduled for January 1, 2025, bringing the threshold to $58,656 ($1,128 / week.) That’s nearly double the current weekly minimum required salary!
What should employers first step be? Review current exempt employees’ salaries. Are any below the new July 1 threshold? What about the January 1 threshold? Employers need to consider options, be strategic and get a plan in place.
Some likely options may include:
- Raising salaries to meet the new threshold
- Reclassifying employees as non-exempt (many companies use the term “hourly”)
- Take note: this option will hit your overtime budget and create the burden of timekeeping requirements and recordkeeping – think timesheets!
There are obvious budget implications with all the options. There needs to be a discussion around what to do and how to do it without breaking the bank. As a FYI, the Fair Labor Standards Act, doesn’t give employers a lot of creative options, but it’s worth discussing what options may be available.
What about the less obvious consequences of the changes?
- How will salaried exempt employees feel about being moved to an hourly non-exempt position? Are their egos involved? Does this feel like a demotion to them?
- Raising salaried exempt employees to the new minimum- are employees going to be excited about the raise or are they going to focus on the fact that they are only being paid the “minimum” for what they are doing.
- What about morale? with lower morale comes increased complaints, lower productivity and engagement, increased turnover and absenteeism … the list goes on.
While the DOL claims this is an incremental approach to the changes, it certainly doesn’t give employers much of a runway to prepare for and make these changes. Business groups are advocating against the proposed changes, but January 1 is right around the corner! Employers need to get ready, consider options, and have a plan in place, ensuring compliance, while keeping budget and employee impact in mind.
**As a reminder, the Salary Threshold test is just 1 of the 3 tests employers must meet to classify an employee as salaried exempt.
- Employees must meet the Duties Test, meaning their primary work must be considered supervisory, professional, or administrative (administrative does not equal clerical) exempt level work.
- Second is the Salary Basis Test, meaning the employee is paid a pre-determined salary, not subject to reductions based on quality or quantity of work, in other words the employee’s salary can’t fluctuate except in very limited circumstances defined in the FLSA.
- And again, the third test is the salary threshold test.
For additional questions, more information and advice, email me at Elizabeth@BrackettHR.com .
The DOL has several fact sheets on the changes discussed above. Here are a few links that may be helpful:
Small Entity Compliance Guide | U.S. Department of Labor (dol.gov)