THE BASICS
The FLSA stipulates that most employers are required to pay most employees the federal minimum wage for each hour worked, as well as overtime pay for all hours worked in excess of 40 hours in one workweek.
The FLSA allows for exemptions from the overtime and minimum wage requirements for certain executive, administrative and professional employees. To be considered “exempt,” the employees’ wages must satisfy specific salary thresholds and their daily activities must pass a primary duties tests.* Generally, if the employee is salaried, the employer must pay the employee their full salary in any week they perform work, regardless of the quality or quantity of the work.
WHAT’S CHANGING NOW
Effective July 1, 2024, in order to qualify for an administrative, professional or executive exemption from FLSA’s overtime requirements, employees will be required to be paid a minimum weekly salary of $844 (equivalent to $43,888 per year). Exempt computer professional employees may also be paid hourly, if it is at least $27.63 per hour, which won’t change under the new rule.
Employers can use non-discretionary bonuses, incentives, and commissions to satisfy up to 10% ($84.40 weekly) of the minimum salary requirement for the exemptions, as long as this type of compensation is paid annually.
The minimum total compensation requirement for the exemption for highly compensated employees increases to $132,964 per year, including at least $844 per week that must be paid on a salary or fee basis.
WHAT’S AHEAD
Effective January 1, 2025, the minimum salary required for exemption will increase to $1,128 per week (or $58,656 per year). Non-discretionary bonuses, incentive payments, and commissions to satisfy up to 10% of the minimum salary requirement will now be $112.80 per week.
The minimum total compensation requirement for the exemption for highly compensated employees will increase to $151,164 per year, including at least $1,128 per week that must paid on a salary or fee basis.
Future minimum salary increases will occur every 3 years. The next update will take place on July 1, 2027.
KNOW YOUR OPTIONS
If your exempt employees fall below the new salary threshold, you have 2 options:
- Reclassify the employees as non-exempt and pay them the overtime rate whenever they work more than 40 hours in a workweek; or
- Raise their salary to meet the new requirement.
Here are some issues to consider and actions to prepare:
- Review all the current classifications of all your employees. Pay special attention to those classified as “exempt” to be sure that those employees will still qualify under the duties test AND the new salary thresholds.
- Identify those employees who currently earn less than $844 per week (second half of 2024) and $1,128 per week (2025) and are classified as exempt from overtime.
- Evaluate the impact on your business of wage increases, specifically overtime rates for hourlies vs exempt employees who will need a salary adjustment. Remember benefits might be impacted here as well.
QUESTIONS? Contact Victoria “Tori” Jackson at 561-209-1108 or Vjackson@yourpayrollsolutions.net
*Duties test: https://www.dol.gov/agencies/whd/fact-sheets/17a-overtime