The Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and Federal, State, and local governments.
Upcoming Changes to the Salary Threshold for Exempt Status
Currently, the salary threshold is $35,568 annually.
The Department of Labor has increased the annual salary-level threshold for white-collar exemptions to:
Phase One: $43,888 – effective 7/1/24
Phase Two: $58,656 – effective 1/1/25
Additional Requirements for Exempt Status
Under the FLSA, there are exemptions for executive, administrative, professional, computer & outside sales employees.
There are a few requirements for a job/person to be classified as exempt (not eligible for overtime):
The salary threshold is the first requirement. If the salary minimum isn’t met, the employee is non-exempt and eligible for overtime.
A duties test requirement must be met for a job to be classified as exempt.
What Should I Do Now?
It is a great time to not only look at the salary threshold issue but to do a full FLSA audit to ensure that employees are properly classified in your organization.
Here are the recommended steps to take:
Review the salaries of all employees and identify those that are exempt and have a salary under the phase one or the phase two salary threshold. If anyone is below, your options are to make them non-exempt or raise their salary to the minimum level.
Review the duties test to ensure individuals are correctly categorized as exempt based on the updated criteria.
Communicate changes to impacted employees. A written notice regarding this change for each impacted individual is recommended. Keep in mind that there may be some resulting morale issues that you will need to carefully manage communication.
Make any necessary changes in your payroll system and provide training on timekeeping or any other areas impacted for those involved – managers and employees.
Revise job descriptions to reflect status changes.
What Happens If I Misclassify an Employee?
When an employer wrongfully classifies an employee as exempt, they may be:
Held liable for all unpaid overtime owed to that employee going back as far as 3 years before the date of the claim.
The court may levy penalties against that employer in the form of liquidated damages in an amount equal to the sum of unpaid wages the employee is owed.
Employers who willfully and/or repeatedly misclassify employees as exempt are subject to up to $1,000 in civil penalties for each violation and may be criminally prosecuted as well, exposing them to a fine of up to $10,000 and/or incarceration.
If you have questions or would like assistance, reach out to leslie@influencehrconsulting.com.
PLEASE NOTE - This is not designed to serve as a substitute for legal advice.
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