New Overtime Rule Set to Increase Salaries for Exempt Employees

New Overtime Rule Set to Increase Salaries for Exempt Employees 

On April 23, 2024, the U.S. Department of Labor (DOL) announced a final rule that increases minimum salary threshold requirements for white-collar employees to be exempt from overtime wages. Millions of workers who are currently classified as exempt will soon need to receive a pay increase or be required to track hours and be paid for overtime. 

The first phase of this final rule takes effect on July 1, 2024. 

What Are the Increased Salary Levels? 

According to the Labor Department, there are two salary increases proposed to take effect over the next year, with regular increases scheduled (and to be determined) afterwards.  

July 1, 2024, Salary Increase = $43,888

As of July 1, 2024, salary levels will increase to:  

• $844 per week ($43,888 per year) for white-collar employees to be exempt; and  

• $132,964 per year for highly compensated employees 

January 1, 2025, Salary Increase = $58,656 

Starting January 1, 2025, salary levels will increase again to: 

1. $1,128 per week ($58,656 per year); and 

1. $151,164 per year for highly compensated employees 

Recurring Increases Every Three Years as of 2027 

Going forward, the DOL will increase minimum exemption salary amounts starting July 1, 2027, and every three years thereafter. At that time, the agency will apply current wage data to determine applicable salary levels. 

Is Salary the Only Requirement to Be Classified as Exempt?  

According to the Fair Labor Standards Act (FLSA), a white-collar employee must meet one of the following exemption categories, in addition to being paid the minimum salary threshold: Executive, Administrative, Professional, Creative Professional, and Computer Employee.  

Some highly compensated employees who perform office or non-manual work may also qualify for the FLSA white-collar overtime exemption.  

Executive Exemption 

• Primary duty: managing the company, department, or subdivision. 
• Regularly directs the work of at least 2+ full-time employees; and 
• Has the authority to hire or fire other employees or make suggestions and recommendations as to the change of status of other employees. 

Administrative Exemption 

• Primary duty: performance of office or non-manual work directly related to the management or general business operations. 
• Exercises discretion and independent judgment with respect to matters of significance. 
• Administrative professional examples: finance, accounting, advertising, marketing, human resources, public relations, etc. 

Professional Exemption 

• Primary duty: work requiring advanced knowledge (“predominantly intellectual in character”) and includes work requiring discretion and judgment. 
• Advanced knowledge must be in a field of science or learning and be customarily acquired by a prolonged course of specialized intellectual instruction. 
• Learned professional examples: accountant, attorney, nurse, engineer, teacher, doctor, licensed/certified practitioner of law or medicine (including interns and residents), etc. 

Creative Professional Exemption 

• Primary duty: performance of work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor. 
• Creative professional examples: composer, singer, graphic designer, etc.   

Computer Employee Exemption 

• Must be paid at least $27.63/hour 
• Primary duties consist of:
  • The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications; 
  • The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; 
  • The design, documentation, testing, creation, or modification of computer programs related to machine operating systems; or 
  • A combination of the aforementioned duties, the performance of which requires the same level of skills. 
• Computer employee examples: network analyst, developer, software engineer (not lower-level computer support roles) 

Exemptions to Overtime with No Minimum Salary Requirements 

There are several FLSA exemption categories that do not have minimum salary amounts, including commissioned sales employees, computer professionals, some drivers (and driver helpers), farmworkers, some workers of automobile dealerships, and seasonal/recreational establishments.  

Learn more about these exempt categories here. 

Strategies to Prepare for the New Overtime Thresholds to Take Effect 

Millions more workers will soon be eligible for overtime pay because of the DOL’s new overtime rule. To prepare for the minimum pay thresholds to increase, there are several compliance strategies to consider. 

1. Change current pay amount to an hourly rate, track hours, pay overtime 

There is no requirement to give your employees a pay raise. Employees can maintain their current pay amount (changed to an hourly rate equivalent) and simply be dropped to nonexempt status. 

This is a great option for employees who typically work 40 hours or less in a typical workweek, with rare instances of overtime. It is also a great option for employees who are well below the minimum threshold amount, even if they occasionally work overtime. 

If this is the option you choose, you will need to have applicable employees track all time worked beginning July 1, 2024. These employees must then be paid time-and-a-half for any overtime worked. 

2. Reduce current salary amount, track hours, pay overtime 

Look at your exempt employees with salaries less than the new minimum threshold. If these employees regularly work more than 40 hours a week, you have the option of dropping them to nonexempt status and reducing their current salary rate to a lower hourly rate that equates to a comparable final wage with their calculated overtime. 

If you choose this option, be aware that you may face a drop in morale and may need to clearly explain the move to all impacted employees. You will also need to have affected employees track all time worked beginning July 1, 2024, and pay time-and-a-half for any overtime worked. 

3. Increase salary amount to at least minimum threshold 

Assuming employees meet the exemption duties listed above for one of the executive, administrative, or professional FLSA exemption standards, you may simply increase salaries to at least the new minimum threshold to maintain exemption status. This will help you avoid the task of having to track hours and pay overtime.

This is a great option for employees whose salaries are close to the new salary level and regularly work more than 40 hours in a workweek. 

4. Evaluate hours and realign staff workload

If you are concerned about paying high sums of overtime and/or bumping up wages to meet the new overtime exemption status, you may need to evaluate your employees’ workloads. The solution may be to redistribute workloads where certain employees work more than 40 hours in a typical week, or perhaps hire additional workers to help alleviate any burdens. 

Where to Find Help for the New Overtime Rule Compliance 

As with any new change in law, our certified HR experts are here to help you. If you are unsure whether an employee should be classified as exempt or need guidance with the transition, please contact your HR Consultant. 

Not a current Stratus HR client? Book a free consultation and our team will contact you shortly.

Sources:
DOL