Labor Department requires new minimum salary test

Due to new regulations to the Fair Labor Standards Act (FSLA) enacted in April, employers will need to review the minimum salaries paid to their exempt, salaried employees to meet the U.S. Department of Labor’s (DOL) new minimum salary test. This review is needed to ensure compliance, effective July 1.

The change is significant for both employers and employees, as it affects who qualifies for exemptions from overtime pay requirements under FLSA. The sections below summarize areas that employers can use to guide their actions to help meet the new regulations.

The minimum salary test is a threshold set by the DOL that determines if certain employees can be classified as exempt from minimum wage and overtime requirements. To qualify for exemption, an employee must meet specific criteria related to their job duties and receive a salary that meets or exceeds the set threshold.

For more detailed information and resources, employers can visit the DOL website or consult with a labor law expert to navigate these regulatory changes effectively.

Key changes in the new regulations

1. Increased salary threshold: Previously set at $684 per week ($35,568 annually), the new threshold is now $844 per week ($43,888 annually) and increases to $1,128 per week ($58,656 annually) on Jan. 1, 2025.
2. Automatic updates: The salary threshold will now be automatically updated every three years based on wage growth over time. This ensures that the threshold remains relevant and fair in the context of the broader economy.
3. Highly compensated employees (HCE) threshold: The new rule also increases the total annual compensation requirement for highly compensated employees from $107,432 to $132,964. HCEs must perform office or non-manual work and meet certain job duties to qualify for exemption.
4. Bonuses and incentive payments: Employers can now use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new standard salary level. This is intended to provide employers more flexibility in the types of compensation used to meet the salary requirement.

Impact on employers and employees

For employers, these changes mean reassessing the classification of employees and possibly adjusting salaries or reclassifying some positions to ensure compliance with the FLSA. Employers need to:

• Review compensation structures: Evaluate current employee salaries and determine the trade off to make necessary adjustments to meet the new threshold or convert all job incumbents to hourly pay arrangements.
• Update payroll practices: Ensure that payroll systems are updated to reflect changes in exempt and non-exempt statuses.
• Communicate with employees: Clearly communicate any changes to employees, explaining how these changes might affect their pay and overtime eligibility.

For employees, the new regulations offer potential benefits:

• Increased pay: Employees who were previously exempt from overtime pay but now fall below the new threshold may receive salary increases to maintain their exempt status.
• Overtime eligibility: Previously classified as exempt employees who are reclassified as non-exempt as a result of this new salary test will become eligible for overtime pay, potentially increasing their overall compensation.

Implementation activities

Employers can start to prepare for the implementation of the new regulation by conducting a thorough audit of their workforce to determine which employees are affected by the new rule. Steps that an employer can take include:

1. Identifying affected employees: Determine which employees fall below the new salary threshold and assess their job duties to confirm if they still meet the exemption criteria.
2. Adjusting salaries or reclassifying positions: Employers will need to decide whether to increase salaries to maintain exemption status or reclassifying employees as non-exempt, making them eligible for overtime.
3. Updating policies and training: Reclassifying employees into non-exempt status may require a company to revise certain policies and train management and HR personnel on the new requirements to ensure proper implementation.