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Second Salary Threshold Increase Coming in January 2025

By Christina Santillo, SHRM-CP, Senior Human Resources Consultant 

On April 26, 2024, we posted a blog letting all our readers know that the Department of Labor (DOL) had issued a final rule increasing the minimum salary threshold for certain exempt employees (More Workers Will Soon Qualify for Overtime Pay). The increase applies to certain “white collar” exemptions (executive, administrative and professional or “EAPs”). Effective July 1, 2024, the minimum salary threshold was raised from $684 per week ($35,568 per year) to $844 per week ($43,888 per year). Starting January 1, 2025, a second increase to this salary threshold will take effect.

What’s Changing?

Starting January 1, 2025, the minimum salary for workers who qualify for one of the EAP exemptions will be $1,128 per week ($58,656 annually). Failure to pay these exempt employees this new salary threshold will result in them losing their exempt status and then being owed overtime.

Additionally, the salary threshold for highly compensated employees (HCE) will rise from $132,964 to $151,164 on January 1, 2025.

Why Is This Happening?

The DOL’s rule is designed to better align wages with the cost of living and inflation. It’s part of an ongoing effort to ensure that workers are fairly compensated for their work, particularly those in managerial, administrative, and professional roles who are often exempt from overtime pay.

What Employers Need to Do

With the January 1st deadline quickly approaching, it’s essential for businesses to start reviewing their employee classifications and salary structures now. Here are a few steps to take:

1. Review salaries and reclassify, if necessary. Identify employees who are currently classified as exempt but fall below the new salary threshold (i.e., $1,128 per week or $58,656 per year). These employees will either need to receive a salary adjustment to meet the new minimum threshold or be reclassified as non-exempt, making them eligible for overtime pay. If you reclassify them as non-exempt, this will require that they track all hours worked and are paid overtime, which can add administrative tasks but may be more cost-effective than increasing salaries.

2. Update payroll and budgeting plans. Ensure that your payroll systems are ready to accommodate these changes and that your budgeting accounts for the potential increase in salaries or overtime costs.

3. Communicate with employees. Transparency is key. If changes to employee classification or salary are necessary, ensure that you clearly communicate these updates to affected employees.

4. Check applicable state laws. Please note 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.

The Impact of Non-Compliance

Failure to comply with the new salary threshold rule can result in costly penalties. Employees paid below the new salary threshold would be entitled to back pay for overtime hours, and your business could face additional fines from the DOL. Therefore, it’s important to act now to avoid legal and financial risks.

By preparing early, you can ensure a smooth transition into the new year and avoid potential compliance issues.

If you are an employer with questions about compliance or human resources issues, our Risk Management Division is here to help. Contact us at 855-873-0374 or email us at . We are committed to helping you navigate the complexities of workplace regulations.