On April 23, 2024, the Department of Labor (DOL) released a final rule that updated Fair Labor Standards Act (FLSA) salaries for overtime-exempt workers. The new changes will occur in a two-step progression.
In July, employers must start paying overtime-exempt workers $43,888 per year. Then, the minimum FLSA salary will jump to $58,656 per year on January 1, 2025. Previously, employers were only required to pay salaried employees $35,568 per year.
How to Deal With Current and Future Employees
For employers, this rule change reflects a 65% jump in payroll for salaried workers. In 2027, the minimum salary may increase again because the DOL wants salaries updated every three years as worker pay increases.
If you want your workers to remain exempt from overtime pay, you must pay the added cost connected to these higher salaries. During this adjustment, you should make sure to communicate with your workers and be transparent so that they understand why changes are being made.
Converting Someone to Non-Exempt
One way to deal with this change is by converting someone from exempt to non-exempt. However, you must do this with caution. If the DOL feels like this change was made entirely to avoid the minimum salary law, it may result in a civil penalty, damages, and back pay. In one recent case involving withheld overtime pay, violators had to pay over $1 million.
If you do convert an employee’s status to non-exempt, you must communicate with them about it. The easiest way to do this is by doing the math for the hours they previously worked and the typical overtime they put in each week as a salaried worker. Then, demonstrate that they will still be earning a similar wage once overtime is accounted for.
To some people, salaried employees appear to have a greater status than hourly workers. Because of this, you must be clear in communicating the reason why you are switching their exemption status. You must make sure your employees know that it does not reflect their status or value at your company. If there is a point in the future when your business can switch them back to being a salaried worker, express this to your employee.
Other than avoiding hurt feelings, you should also consider reviewing how hourly jobs function. Discuss your company’s policies on clocking in and out. Salaried workers aren’t used to taking lunch or being required to clock in to answer an email, so you need to talk about these HR issues. You should also clearly discuss your media, email, and phone policies, so employees are aware that they should only deal with company matters while they’re on the clock.
Adjusting Pay for Existing Workers
When you advertise job listings and hire new employees, you will have to pay new hires $58,656 or more per year. Many states require you to list the pay amount on job descriptions. Even when states don’t require you to advertise the pay, your workers will normally find out what everyone earns over the water cooler.
What this means is that you can’t just pay your existing workers $58,656. They will quickly realize that new hires are making the same amount. If you want to avoid losing your best workers, you must find a way to pay them more than new employees.
Communicating New Pay Scale to Current and Future Employees
Sometimes, it isn’t possible to pay all of your existing workers more than $58,656. When this is the case, the best thing you can do is communicate about your salary dilemma. Make it clear when you will be able to adjust the salary, why you have to wait, and how much you will be able to change their salary.
It’s important to explain your pay scale to current and future employees. Otherwise, you risk turning a good worker into a disgruntled one.
Reviewing Your Overtime Policy
As your business decides on how you want to handle this FLSA change, you should create new materials for your employee handbook and onboarding guide. You will need to create an updated overtime policy. Additionally, you should develop policies about the situations when employees should clock in for work and how clocking out for lunches works.
Create a space on these policies for employee signatures. Then, you can review the policies with each employee and store the signatures as their proof of completion.
The Importance of Transparency and a Positive Attitude
Handling these new rules can be challenging. In a recent Mission to Grow podcast interview, the vice president of HR compliance and learning and development at Asure, Mary Simmons, discussed the best practices for handling the FLSA update. “I think transparency is the best bet. You have to show them the math.” By showing employees hard numbers, you can help them understand how and why changes are being made.
Some workplaces will be able to adjust salaries for current and existing workers so that everyone is happy. For workplaces that can’t simply pay more, communication is key. Employees will be more willing to wait for a raise or temporarily take on an hourly role if they understand why.
Navigate New FLSA Rules With Ease
The DOL’s update to FLSA exemptions is expected to cost employers $1.5 billion more in salary costs. Because of this, it is incredibly important for employers to start figuring out ways to handle this adjustment. July is only a couple of months away, so right now is the best time to begin planning for higher salaries.
If you are trying to adopt new FLSA salaries for your exempt workers, we can help. For more information, reach out to Asure’s payroll and HR experts today.