By Renee Mielnicki, Esquire
For those who regularly read our blogs, you may recall that I drafted a blog not long ago to alert our readers that they should prepare for a new overtime rule to launch. Well, if you haven’t already prepared for that change, you’ll need to do so before July 1, 2024, when the new law on overtime pay takes effect.
Before digging in, let’s do a recap. 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 by salary and that salary must meet 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.
However, that minimum salary threshold is about to change effective July 1, 2024. Starting July 1, most exempt employees must be paid at least $844 per week ($43,888 per year). This amount will be raised again on January 1, 2025, to $58,656 per year. In addition, for those relying on the highly compensated exemption, on July 1, 2024, the salary threshold will rise from $107,432 to $132,964 per year. Then, on January 1, 2025, it will rise to $151,164. Failure to pay exempt employees these new salary thresholds will result in them losing their exempt status and they would then be owed overtime pay.
How do employers prepare?
- Identify impacted employees: Review all of your exempt employees to see if any of them make below the new salary threshold of $43,888 per year.
- Plan a pay adjustment: For those making under $43,888, 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.
Please note a few additional items as you prepare for compliance with this final rule:
- There may 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 expect this rule to be challenged in court as well but have no way to know the outcome. For that reason, employers should prepare for compliance with the final rule before its effective date, which is right around the corner.
- 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.
We will continue to monitor any challenges to this new rule and keep our readers informed. Meanwhile, 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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