If an employee is an executive, administrative, or professional employee, you are legally allowed to pay them a salary and not pay them overtime. The same thing is true for employees who are considered highly compensated employees (HCEs). Thanks to a finalized rule in April 2024, employers will soon need to pay higher salaries to both classes of workers.
The rule doesn’t take effect until June, so it’s important to start figuring out ways to incorporate these changes now. Your workplace will need to consider which employee contracts need to be adjusted and how you will afford to pay salaried workers more. Additionally, this is a good time to overhaul your overtime policies so that they are in line with all federal and state regulations.
The New FLSA Salary Changes for Exempt Workers and HCEs
For many organizations, the new FLSA rule will be challenging to navigate. Currently, employers are expected to pay salaried employees $35,568 per year. Fortunately, the Department of Labor (DOL) decided to take a stepped approach to increasing the salary. After jumping to $43,888 in July 2024, it will increase again to $58,656 on January 1, 2024.
Meanwhile, HCEs will see a similar pay increase. Currently, HCEs are paid $107,432. On July 1, 2024, their salaries must increase to $132,964. Then, the salary level will rise to $151,164 in January 2025.
After these initial increases are complete, the DOL will institute regular increases at three-year intervals. The next salary increase will occur on July 1, 2027.
5 Best Practices for Incorporating New FLSA Overtime Regulations
Incorporating these new salary requirements can be financially difficult for small businesses. In addition to paying your workers more, there are a few other things you should do to follow FLSA salary and overtime regulations.
1. Employee Handbook
A well-written employee handbook is more than just an onboarding tool. It can also protect your business in the event of an HR- or compliance-related dispute. By training employees and getting them to sign off on relevant sections in the handbook, you can demonstrate that the training sessions were completed.
Overtime Policies
As a part of your overtime policies, you must hang up a DOL poster explaining the FLSA. Then, you can add other overtime policies to your employee handbook. For example, you may want to discuss situations when overtime is mandatory and how employees should go about getting an overtime request approved.
You should discuss situations when overtime is allowed and any limitations on overtime hours. The policy may also include other information, like the standard workweek, so employees can figure out if they are entering overtime hours or not.
Paid Time Off (PTO)
The FLSA overhaul will likely have an impact on the PTO you offer. If you change some of your salaried workers to hourly employees, this will impact what it means to take a day off and how PTO is accrued. You should incorporate any PTO and vacation time changes into your updated employee handbook.
2. Making the Determination: Exempt or Nonexempt
Once the FLSA salary update is completed in 2025, it’s estimated that it will cost employers an extra $1.5 billion per year. Because of this, there are undoubtedly some businesses that will decide to reclassify some of their overtime-exempt workers as non-exempt.
Before you make this determination, you may want to talk to a labor attorney to see what your options are. If you are only reclassifying workers to avoid salary payments, you might get in trouble with the DOL. However, the ruling was also made because so many restaurants and retail establishments were classifying low-level managers as salary employees, which allowed them to work almost unlimited hours. In these cases, it may make sense to reclassify low-level management as hourly workers.
3. Be Positive
No matter how you decide to classify an employee, you should be positive and transparent about the change. For example, some employees view being changed to an hourly wage as a loss of status. In these cases, you’ll need to walk the employee through the math to show how their new hourly rate works out to the same wage once you account for all of the overtime hours they previously performed.
If you will be able to increase wages in the future, express that to your workers. You can also talk to employees about the types of extra responsibilities they would need to take on to be paid more.
4. Explain Clocking-In Policies
If you have changed an employee’s status, you may need to have a discussion with them about when to clock in and out. As a salaried worker, it didn’t matter if an employee showed up early or stayed late just to chat with their co-workers. Now, employees can’t just clock in and work extra hours.
In addition, you should talk to managers and employees about policies around texting and calling during after-work hours. This type of communication counts as work, so the employee is essentially clocked in as soon as they receive a text from a manager. Because of this, it’s important to discuss when it is acceptable to message an employee and when a question should wait for the next day at work.
5. Pay Exempt Employees Properly
The most important practice for incorporating new FLSA rules involves wages. You must make sure that your exempt workers and HCEs are paid appropriately.
It’s important to keep in mind that employees can see your job listings and ask new hires how much money they make. While it can be challenging to afford a higher salary, you should keep in mind that your existing workers should be paid more than the minimum salary. If your loyal workers get the same as your new hires, you will likely see a lot of churn among your workers.
Taking the First Step in Incorporating the FLSA Ruling
While navigating the FLSA update can be stressful, it will gradually get easier. To get started, you will need to incorporate the new salaries into your payroll and update your overtime policies. By following the previous steps, you can make sure your company is fully prepared for the salary change.
If you need help updating your policies for the FLSA ruling, we can help. To learn more about our HR and payroll services, reach out to our small business experts today.
