Have you heard?
If you own a business, or work in HR or Finance and have not heard about the new rules by now, then here’s your sign to get brushed up on them… QUICKLY.
Beginning July 1st, the threshold for pay that qualifies for overtime-exempt status will increase to $844 per week. Then, just six months later beginning January 1, 2025, it will increase again to $1,128 per week (see inserted image; source dol.gov).
What does all this mean? It means that within less than a year, we’ll be moving from the minimum threshold in order to be considered overtime-exempt being the current $35,568 per year, increasing to $58,656 per year (based on a 52 week year for payroll purposes).
That’s a whopping $23,088 difference!
And wait; there’s more… Although we’ll see a pause for a while with changes, it will pick back up again beginning July 2027, when the earnings thresholds will be updated every three years (so keep an eye out for more updates in the future).
What qualifies an employee as overtime exempt?
Not just anyone can be considered exempt from being able to receive overtime. There may be employees who make well over the minimum pay threshold referenced above who can still collect overtime. Analyzing each role’s duties, responsibilities, level of decision-making weight, in combination with the pay, is how you’ll best determine if an employee may be considered exempt from collecting overtime pay.
According to the DOL, in order to be overtime-exempt, an employee must:
- Be paid a salary
- The salary is not less than the threshold amount (see image/info above)
- The employee primarily performs executive, administrative, or professional duties
“Salaried” vs “Exempt” – These words have different meanings!
You’ll often hear the terms “salaried” and “exempt” being used interchangeably. While it makes sense that these terms may get a bit mixed up, it’s imperative to understand the difference (because they are, in fact, different).
Employees who are overtime-exempt are always also paid on a salary, however, not all employees paid on a salary are necessarily overtime-exempt. Read that again. There may be instances where an employee who is paid on a salary is NOT overtime-exempt (also known as “non-exempt”), and they are eligible to receive overtime pay.
- Salaried – A salaried employee (or an employee who is paid “on a salary”) is an employee who is paid a set amount that doesn’t fluctuate or change
- Salaried employees may be paid weekly, biweekly, or monthly (most often biweekly or monthly), and the rate is not based on a “per hour” or “hourly” rate; again – it doesn’t change.
- Salaried employees may collect overtime (unless they are exempt).
- Exempt – An exempt (or “overtime-exempt”) employee is one who is not eligible to receive overtime pay.
- The main rules to follow in order to consider an employee exempt are the three items listed in the last section. They must meet the minimum pay threshold, be paid on a salary, and primarily perform executive, administrative, or professional duties.
- Salaried & Exempt – It’s possible for an employee to be both salaried and exempt.
- Teachers are a good example of employees in a profession who are paid on salary and are also overtime-exempt. They are typically paid a regular, fixed rate of pay, and do not receive overtime pay, regardless of if they work over the usual 40 hour work week.
Action Items – Make sure you’re compliant!
Many employees will lose their overtime-exempt status, meaning they’ll suddenly be eligible to receive overtime pay for their hard work and long hours. Some businesses may opt to keep some of their exempt employees in their exempt status by raising their pay above the minimum required threshold.
No matter what route you take, as a business owner it’s important to assure you do SOMETHING.
Assure you’re in compliance, and plan ahead – don’t wait.
Make sure you communicate changes to the affected employees; explaining what’s going to happen and when. If they have questions you simply don’t know how to answer, provide them resources to the DOL online so they may read more about the rules on their own. Lastly, it’s best practice to have any affected employee sign an acknowledgement when their pay or their exempt status has changed. Be sure to provide the employee a copy of the signed acknowledgement, and keep one in their employee file.
Takeaways
Do you feel you’re ready to take a look at your staffing plan, and assure you’re in compliance with these upcoming changes?
If you’re like many companies since these new pay thresholds were announced, you’re already taking a look at your employees (and your budget) and planning for what’s to come.
Raising the pay threshold for what may be considered overtime-exempt is expected to affect millions of employees nationwide. The estimate of how many employees it will affect after the January 1, 2025 update is up to 4 million!
For as many employers who are invested in these new threshold updates, it’s safe to say that there’s just as many or more employees who are closely watching and eagerly awaiting to see how their company handles this moment in history.
Assure you’re in compliance and don’t stuck trying to plan last-minute.
If you need a little support, we’re here. Reach out to see how easy it is to enlist Eagle Mountain HR’s guidance in conducting a compliance audit well ahead of the implementation deadlines – it’s easy and affordable. Now’s the time.
We’ll help you soar to success! 🦅
Eagle Mountain HR 