By Renee Mielnicki, Esquire
Last Fall, the Department of Labor (DOL) proposed changes to wage and hour law that will impact most employers. The final rule, which could be out as early as next month, will create budgetary and compliance considerations for which companies need to prepare.
Before we dig into the details, let’s consider the backdrop. Federal wage and hour laws require employees to be paid according to certain rules. For instance, employees are separated into two classes: those exempt from overtime pay and those who are non-exempt. Non-exempt employees must be paid at least minimum wage for all hours worked as well as time and a half for any hours worked over 40 hours in a workweek. The rules are a bit different for those who are exempt.
In order to be exempt from overtime, exempt workers must: (1) meet certain duties tests; and (2) be paid a minimum salary threshold. The duties tests and salary threshold are determined by federal law.
Federal wage and hour laws are regulated by the United States Department of Labor (DOL). Currently, an employee must be paid at least $684 per week or $35,568 per year to meet the minimum salary threshold. If this threshold is not met, the employee will automatically be entitled to overtime pay at 1.5x their regular rate of pay.
Last fall, the DOL proposed raising this salary threshold to $1,059 per week or $55,068 per year, which is a 55% increase from the current level. There is a footnote in the text of this proposed rule indicating the salary requirements could be as high as $60,209 in the final version of this rule. If the threshold is raised, anyone making less than this required salary will automatically be owed overtime.
Recently, the DOL announced it may publish its final rule as early as April of 2024. Publication would be in the Federal Register and could make the rule effective in about 60 days from its publication date.
How do employers prepare?
- Identify impacted employees: Review all of your exempt employees to see if any of them make below the proposed salary threshold of $55,068 per year.
- Plan a pay adjustment: For those making under $55,068, there are two options. The first is to increase their salary to the required threshold to continue their exempt status. Alternatively, you could re-classify them as non-exempt. If you choose re-classification, they will be required to track their time worked. You will also need to: (1) pay them on an hourly basis with overtime for all hours worked over 40 in a workweek; or (2) continue to pay them their current salary plus overtime pay for all hours worked over 40 in a workweek. This would involve a salary-to-hourly rate conversion calculation to ensure any overtime worked is paid at 1.5x their hourly rate.
Wage and hour laws are numerous and very detailed. Generally speaking, the salary threshold requirement rules apply to what are known as the white-collar exemption (executive, administration, and professional employees). There are other exemptions, some of which either don’t have a salary threshold requirement or are not affected by the proposed rule.
Please note a few additional items as you prepare for compliance with this final rule:
- There could be legal challenges. President Obama attempted to raise this salary threshold during his presidency via an executive order to the DOL. In response, the DOL published a final rule that was challenged in court and later became invalid. We have no way to know if this rule will be challenged or be invalidated if it is. For that reason, employers should prepare for compliance with the final rule before its effective date.
- This is a federal rule. States have their own wage and hour laws, including a minimum salary threshold. Employers need to comply with both federal and applicable state laws. Where there is a conflict, the rule most beneficial to the employee must be applied. For instance, California law requires a salary threshold of $66,560. Employers in California would therefore need to pay exempt employees no less than $66,560 a year since that amount is more beneficial to the employee.
If you are an employer with questions about any HR issue, contact our Risk Management Division by phone at 855-873-0374 or by email at hrhelpline@keystoneinsgrp.com. We will be happy to help!
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