The countdown has begun! It’s two business days before the U. S Department of Labor’s proposed new salary thresholds for exempt employees go into effect and so far none of the courts hearing challenges from employers about these new rates have yet issued an injunction to stop it either in a particular jurisdiction or nationally.

Unless that happens today or tomorrow, as of Monday, July 1, employers must pay salaried exempt employees who do not receive overtime pay and are not classified as highly compensated employees (“HCE”) at least $43,888  per year ($844 per week).  That is an increase from the current requirement of $35,568 per year ($684) per week.    As of January 1, 2025, the salary for such workers must be at least $58,656 per year ($1,128 per week).  Also on Monday, the salary for employees who qualify for exemption from overtime because they are “highly compensated employees” will increase from $107,432 per year to  $132,964 per year.  As of January 1, the salary for those workers must be at least $151,164 per.  These new rates will apply unless employees work in states or localities with higher salary thresholds than this (such as New York). In those cases the workers get paid the higher state required rates.

Here is a refresher on what makes an employee exempt from overtime pay. To be properly classified as an exempt worker, all employees (except those classified as HCE must meet three requirements: (1) the employee must be paid the same salary every week  (salary basis) regardless of hours worked, with a minimum weekly salary set by the US DOL (or higher rate set by a state or locality) and  (2) perform exempt executive, administrative, professional, computer or outside sales ) job duties (duties test).  Employees are correctly classified as HCE if they earn the minimum annual salary set by the DOL and customarily and regularly perform at least one  exempt executive, administrative, or professional employee duty.  

The employer has the burden to justify classifying an employee as exempt from overtime. Merely paying an employee the same salary every week also does not mean the employee is exempt from overtime pay. An employee’s job title or job descriptions does not determine exemption status, only their actual job tasks performed do. Any employee not meeting these requirements must be classified as non-exempt, paid hourly at a straight time rate for the first 40 hours they work in a week and 1 ½ times the straight time rate for time worked over 40 hours in a week.

If this new rule goes into effect Monday employers first must determine which exempt employees are affected and when since the higher salary thresholds increase at two different times of the year. Employers then have the option of giving those employees a pay raise or reclassifying them as nonexempt and paying them overtime if they work more than 40 hours in any given work week.  Making this decision can be complicated and can depend on the employer’s budget, how many hours such employees currently work each week and whether assignments can be changed to eliminate the possibility of employees having to work more than 40 hours to get their jobs done. If an employee previously classified as exempt now will be classified as nonexempt and overtime eligible and the employer expects that employee to be working more than 40 hours per week they can set their regular hourly rate lower to address that as long as the employee is still paid at least the minimum wage.

As for the highly compensated employee group, employers have the same options for such employees as explained above and can also consider adjusting an HCE’s job responsibilities to meet the full duties of an executive, administrative or professional employee,  Regardless of which choice employers make with this group, employees working at these high salary rates are accustomed to getting paid at this level and employers need to be prepared for strong reactions to changing their compensation.

Each of these options presents its own challenges. This can be complicated information for both employees and their employers to understand and changes employers make should also be reflected in overtime policies and well communicated. The DOL has helpful information on their website https://www.dol.gov/agencies/whd/overtime/rulemaking

If you need assistance understanding how these change apply to you or your organization, reach out for a consultation.