EMPLOYERS WITH OVERTIME EXEMPT EMPLOYEES MUST TAKE ACTION BEFORE JULY 1, 2024 TO ENSURE COMPLIANCE WITH FEDERAL LAW

Employers take note: The requirements to treat a salary employee as exempt from overtime pay are changing, and they’re changing soon. You MUST take immediate and urgent action to be in compliance with these changes on or before July 1, 2024, or you may be in violation of federal wage and hour laws. Continue reading below to learn what steps you need to take NOW.

… First, Some Quick “Housekeeping”

This article is Part I of a three-part series covering employer obligations for the payment of overtime wages and the requirements to treat certain salary employees as exempt from overtime pay requirements. Stay tuned for Parts II and III…

Part I: This article covers changes to the minimum salary threshold required to qualify for certain “white collar” exemptions from overtime pay under the Fair Labor Standards Act (“FLSA”); specifically, the exemptions applicable to employees employed in a bona fide executive, administrative, or professional capacity, as defined in Department of Labor (“DOL”) regulations.

Part II: Covering changes to the minimum salary threshold required for the Highly Compensated Employee (“HCE”) exemption; and
Part III: Covering general information about the payment of overtime wages, determining an employee’s “regular” rate of pay for calculating overtime, and timekeeping requirements for non-exempt employees.

BACKGROUND: What Is the FLSA, and What Are Exemptions?

The FLSA is a federal statute that, in part, requires that all employees be paid at least the minimum wage for all hours worked and an overtime wage rate for all hours worked over 40 during any given workweek. 

It’s important to note that the purpose of the FLSA is to protect workers’ rights to be paid a minimum wage and prevent overly onerous working hours by requiring an additional premium wage rate be paid for overtime hours. The FLSA is one of many “employee protection” statutes designed to improve the working conditions of everyday Americans. Prior to the enactment of such employee protective statutes, many workers were subjected to long hours in unsafe work environments for little-to-no wages without recourse to improve their work conditions.    

BACKGROUND: Requirements to Qualify for the Executive, Administrative, and Professional Exemptions

For an employee to be exempt from overtime pay requirements under the executive, administrative, and professional exemptions, the employee must:

• Be paid a predetermined and fixed salary amount that is not subject to reduction because of variations in the quality or quantity of work performed, including the number of hours worked (i.e., salary vs. hourly wages);

• Primarily perform executive, administrative, or professional duties as set forth in the DOL’s regulations for the applicable exemption (links provided to exemptions below); and

• Be paid at least a specified weekly salary level, or the “minimum salary threshold” 

Note: this article does not cover all available exemptions, only the exemptions impacted by the changing minimum salary threshold. HCE exemption changes will be covered in Part II. Exemptions that do not require action by July 1st will not be covered by this series. 

What’s Changing for Executive, Administrative, and Professional Exemptions?

The minimum salary that an employee must be paid to be exempt from overtime under these exemptions is increasing. Employers will need to review any exempt employee’s salary and increase any salaries currently below the new threshold in order to continue treating the employee as exempt or begin paying the employee overtime wages starting on July 1, 2024. 

Additionally, the DOL rule precipitating these changes also provides for future increases to the salary threshold to ensure that the minimum salaries required for these exemptions keep pace with inflation and economic growth moving forward as previous increases have failed to do so. The last increase to the salary threshold occurred in 2019 when the minimum salary was increased to $684 per week ($35,568 annually) and in 2016 before that. 

Under the new rule:

• The minimum salary threshold will increase on July 1, 2024;

• The minimum salary threshold will again increase on January 1, 2025 to “catch up” after previous increases have failed to keep up with inflation; and

• Beginning on July 1, 2027, the salary threshold will be evaluated and updated in accordance with then-current wage data and again every three (3) years thereafter. 

SALARY THRESHOLD FOR EXECUTIVE, ADMINISTRATIVE, AND PROFESSIONAL EXEMPTIONS

The job duties requirements for these exemptions have not changed. 

What Do Employers Need to Do Before July 1, 2024?

Employers will need to review the salaries of all employees currently treated as “salary exempt” under the executive, administrative, or professional to identify any employees whose current salaries fall below the new minimum salary threshold as of July 1, 2024. 

From there, employers have several options for how to handle the salaries of and overtime pay for employees who will no longer qualify for an exemption at their current rate of pay. 

You may:

• Increase the salary of the employee to at least the new salary threshold and continue to treat them as exempt from overtime;

• Keep the employee’s salary as-is and begin to pay the employee overtime for all hours worked over 40 in any given workweek at an overtime premium rate of one and one-half times (1.5 x’s) the employee’s regular rate of pay;

• Convert the employee’s pay structure from salary to hourly and begin to pay the overtime premium as listed above;

• Reduce or eliminate overtime hours;

• Reduce the employee’s base salary to offset new overtime pay; or

• Use some combination of the above.

Considerations:

• Do exempt employees frequently or occasionally work more than 40 hours per week? 

• Do exempt employees frequently or occasionally work significantly more than 40 hours per week?

• Is anticipated overtime pay more or less costly than the increase to the salary threshold?

• Can you redistribute or redelegate job duties to maximize efficiency and minimize overtime? 

• Would it be more or less costly to hire another full or part time employee to assist with the workload and decrease or eliminate overtime hours?

Remember: Policies and procedures must be executed fairly and consistently, which includes changes to compensation structures, meaning you will need to ensure that each exempt employee is making the minimum salary required for the exemption on an individualized basis. However, whether you increase salaries or begin to pay overtime should be decided and implemented in the same manner for all similarly situated employees to avoid the risk of discrimination posed by making such changes on an individual, person-by-person basis. Employees who hold the same or similar roles or titles, performing the same or similar job duties, or who are otherwise comparable in the terms and conditions of their employment, should be subject to the same standards and same treatment. Whether you decide to increase salaries or pay overtime, to the extent practicable, you should endeavor to implement the same methodology for all similarly situated employees rather than making decisions based on the individual employee on a piecemeal basis. 

As always, we’re here to help. Please reach out to your trusted AnthonyLaw attorney with questions or for assistance in implementing any of the guidance herein.