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5 Action Steps for Small Business Owners FLSA Update: New Salary Threshold Minimums & Overtime Eligibility


5 action steps new salary threshold minimums and overtime eligibility


Here we are again… just like back in 2019 when the salary threshold was raised to its current level of $35,568 annually.  It’s being raised again effective July 1st as well as again on January 1, 2025, and will automatically increase every 3 years after that.  This is a big deal for small businesses.  Not only is it one more level of compliance to adhere to, but it also will impact small business budgets and change how some employees manage their time.

new salary threshold minimums FLSA update 2024

In addition to the salary threshold minimums increasing as noted, the exemption for highly compensated employees will increase to $132,964 on the July 1st effective date and then will increase to $151,164 on January 1, 2025.  The US Department of Labor has provided a FAQ page to help guide companies through these changes.

Let’s take a step back and look at what this all really means.

Under the Fair Labor Standards Act (FLSA), there are exemptions for executive, administrative, professional, computer & outside sales employees who meet the requirements of one of those exemptions and deemed not eligible for overtime.   The compensation threshold is the first requirement in the test to determine the proper classification of employees as either exempt or non-exempt.  Once that compensation threshold is met, the duties test requirements must be met to fully qualify as exempt and not eligible for overtime.  If the salary minimum isn’t met as the initial test, the employee is non-exempt and eligible for overtime.  **Item of note:  How someone is paid does not determine their eligibility for overtime.  Meaning, just because someone is paid a salary, doesn’t mean they aren’t eligible for overtime.  What determines if someone is eligible for overtime is their exempt or non-exempt status under the FLSA.

With the new salary minimum threshold changes, it will provide overtime eligibility to more employees creating the potential for a significant financial impact on your small business, it will change how certain roles are classified and, therefore, it will change how the employees in those roles are managed. 

There are a variety of things to consider when determining when reclassifying someone from Exempt to Non-Exempt - for example:

  • Tracking hours, budgeting for overtime pay, reviewing your compensation plan, reviewing policies related to tracking time and re-evaluating telecommuting as an option for employees.

  • The issue of morale for workers being re-classified from Exempt to Non-Exempt.

  • The impact it has (if any) on available employee benefits.

  • Training for managers on making the change from managing exempt employees to non-exempt employees.

  • Redistribution of job descriptions based on the classification change from exempt to non-exempt.  It is important to ensure that the job descriptions are updated to accurately reflect the role.

  • Managing the communication to employees about the change and what it means for their job.

 

What this ultimately means is for the first compliance deadline of July 1, 2024, is, if you have an employee that is being paid less than $43,888 a year ($844 per week), regardless of the responsibilities of the role, they are automatically non-exempt, eligible for overtime and not eligible for an exempt classification. 

5 Action Steps for small business owners FLSA Update:

  1. Identify impacted employees: Review the compensation of each role/employee to identify anyone that is currently being paid a salary of less than $43,888.  If there isn’t anyone in that category, there is nothing further you need to do as there are no impacted roles.  If there are any employees in this category, continue to the next step.

  2. Review Employee Classifications: If anyone is in that category of being paid a salary less than $43,888, the options are to make them hourly, non-exempt or increase their salary to the new minimum of $43,888.  If their compensation is raised to the minimum and the salary requirement is met, review the duties test within the Fair Labor Standards Act to ensure they are correctly categorized as exempt based on the updated criteria.  If they are changed to hourly non-exempt, the communication and transition plan for them should be managed carefully and is addressed below.

  3. Update Payroll Systems: Based on any changes that were made, be sure to make those updates in your payroll system on or before the July 1, 2024, compliance deadline.  Meaning, either the role is made hourly versus salary and eligible for overtime, or the employees’ compensation is increased within your payroll system to meet the salary minimum requirement.

  4. Communicate Changes: It's important to communicate openly with any employees impacted by these regulatory changes. We recommend having a conversation with anyone impacted to ensure they understand what change is going to be happening and what that means for them.  Particularly if someone is going from salary exempt to hourly non-exempt, they will need to understand any timekeeping policies and procedures as well as what overtime is authorized and what isn’t.  We also recommend providing a written change notice to them that outlines what specifically is changing as well as the effective date and include any applicable policies.

  5. Prepare for January 2025 – Although there are expected to be lawsuits filed that would potentially impact the next compliance deadline, it’s still a good time to consider conducting a compensation review and Fair Labor Standards Act review of all the roles in your organization to understand exactly what the compensation and classification for each role should be, so that when the next round of changes happens in January, you are already prepared and compliant. 

We understand that this is a big change and a lot of information, so please know that we are here to help and support you through this.  The team at Employers Advantage is staying current and up to date on all the changes and can provide the support to ensure small businesses are compliant and not left behind.

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