The U.S. Department of Labor (DOL) recently announced a Final Rule that raises the minimum salary threshold by 65% under the Fair Labor Standards Act (FLSA). The Final Rule institutes a notable increase in salary requirements for the “white collar” exemptions, which include executive, administrative, and professional roles. Previously set at $684 per week ($35,568 annually), the standard salary level will now escalate in two stages:
- July 1, 2024: Increases to $844 per week ($43,888 annually)
- January 1, 2025: Rises to $1,128 per week ($58,656 annually)
Changes to the threshold for highly compensated employees (HCE) will also take effect.
IMPACT ON EMPLOYERS AND PREPARATION STRATEGIES
With these changes set to impact approximately four million workers by 2025, especially those in business services and leisure and hospitality industries, now is the time to take proactive steps to consider the implications the new ruling has on your workforce.
Here are a few key strategies to consider:
Identify Affected Employees: Determine which currently exempt employees will fall below the new salary thresholds. This will be crucial for planning necessary adjustments to salaries or reclassifying employees.
Adjust Salaries: For employees close to the new thresholds who meet the duties test for exemptions, consider raising their salaries to maintain their exempt status. This not only aids in compliance but helps in retaining talent by avoiding reclassification.
Plan for Reclassification: If increasing salaries isn’t feasible, prepare to reclassify affected employees as nonexempt. This change means employees will be eligible for overtime pay, which can significantly affect payroll budgets.
Consider Operational Changes: To manage increased labor costs, you might limit overtime work, adjust pay rates, or use the fluctuating workweek method where legal. Each option requires careful consideration of its implications on employee morale and your company’s operational efficiency.
Audit and Compliance: Regularly audit wage and hour practices to ensure ongoing compliance with both federal and state laws. This is particularly important as some states have higher minimum salary requirements or different exemption criteria than the FLSA.
Stay Informed on Legal Developments: Given the historical context and the potential for legal challenges to new DOL rules, it’s crucial to stay updated on any judicial decisions or changes that could affect the implementation of these changes.
Contact us for additional guidance on assessing and managing the impact of these changes on your workforce.
Also, join us for a free webinar on Monday, April 29th at 11am EST to learn more about the changes and how you can prepare. Stay engaged with HRG and keep abreast of any developments to effectively manage this transition.
