The Final Rule: How the Increase in The Minimum Salaried Threshold Defined by the FLSA Can Impact Your Business
Written by Stephanie Burford, PHR, HR Manager at Advisor HR
Earlier this year, the Fair Labor Standards Act (FLSA) announced the final rule that will increase the minimum standard salary level and the highly compensated employee annual compensation threshold effective July 1, 2024, with a big change coming again on January 1, 2025. This rule could have a significant impact on your business budget.
What is the FLSA?
The Fair Labor Standards Act also known as the FLSA is a federal law that governs minimum wage, overtime pay, recordkeeping, and child labor standards in the United States. It defines rules for when employees are entitled to overtime pay when they work more than 40 hours in a workweek.
In the past, the FLSA has defined employees as either exempt or nonexempt which placed employees into a specific classification. This classification distinguished whether employees who work over 40 hours/week are eligible for overtime for they are not.
According to the Department of Labor Wage & Hour division, to be specified as an exempt employee, employees must be employed in a bona fide executive, administrative, or professional capacity. To fall within the exemption, an employee generally must meet three tests:
Be paid a salary, meaning that they are paid a predetermined and fixed amount that is not subject to reduction because of variations in the quality or quantity of work performed;
Be paid at least a specified weekly salary level; and
Primarily perform executive, administrative, or professional duties, as provided in the Department’s regulations.
This type of classification previously denied employees from receiving overtime if they earned above a certain salary threshold ($684.00/week or $35,568/year). Non-exempt employees are often classified as hourly employees who do not fall under the exempt status and are entitled to overtime when they work over 40 hours.
So, what’s changing?
Essentially, regardless of if an employee is considered exempt or non-exempt, if they do not meet the minimum standard salaried level as defined by the DOL Wage & Hour department, the employee is entitled to overtime. Below is an overview of the announcement and upcoming changes:
Date | Minimum Standard Salary Level |
Before July 1, 2024 | $684/week (equivalent to $35,568/year) |
July 1, 2024 | $844/week (equivalent to $43,888/year) |
January 1, 2025 | $1,125/week (equivalent to $58,656/year) |
Effective January 1, 2025 Employees earning less than $1,128/week (equivalent to $58,656/year) will automatically qualify for overtime pay, regardless of their job classification or duties. Additionally, the FLSA went on to announce that July 1, 2027, and every 3 years thereafter the minimum standard salary level will continue to increase so employees who don’t meet the minimum salary regardless of their classification, will be entitled to overtime pay.
What does this mean for you?
This is a huge change for businesses and can potentially have a significant impact on your budget. It is recommended that all businesses reassess their workforce structure to ensure compliance. To better understand how this may impact your budget identify the following:
1. Audit employee classification: Review your current employee classifications and identify how many salaried-exempt employees you have making less than $1,128/week or $58,656/year.
2. Track employee hours: Utilize Advisor HR’s timekeeping system or if you have a different system, start tracking time accordingly. This will give you a stronger understanding of how much this new rule may cost you. Additionally, it will provide clear records so there are no questions or discrepancies when an employee is entitled to overtime.
3. Consider adjusting salaries: For salaried-exempt employees who are near the $58,656.00 mark, it may be worth considering bumping their salaries above the threshold versus paying for overtime.
It’s past July 1, 2024 – What should I do?
If you currently have employees who fall below the new threshold as of July 1, 2024 ($844/week or $43,888/year), you have two options to ensure compliance with the FLSA:
1. Implement a salary increase for your affected salaried employees whose salaries all below $844/week or $43,888/year; or
2. Make sure you closely monitor the hours of your affected salaried employees whose salaries fall below $844/week or $43,888/year because they are now non-exempt and eligible for overtime if they work over 40 hours in a work week.
Advisor HR is here to help guide you through this process! Not only do we offer a compliant timekeeping system that will allow you to track employees’ hours, but we also offer a direct line to our HR and Legal department for guidance and recommendations regarding specific situations. If you are interested in learning more about how we can help keep you compliant, don’t hesitate to reach out.
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