DOL Announced New Rule Increasing Minimum Salary Threshold for Exempt Employees: Key Changes Employers Should Know
The U.S. Department of Labor (DOL) announced a major update to the salary threshold required for employees to be classified as exempt from overtime pay, a change that has affected many businesses and employees across the country. The final rule, titled Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees, was released on April 23, 2023, and took effect on July 1, 2024.
Overview of the Final Rule
The final rule builds on previous DOL proposals and introduces incremental increases to the minimum salary requirements for exempt employees. It establishes a new set of criteria that businesses must follow when determining which salaried employees are eligible for overtime pay.
Key Provisions of the Final Rule:
On July 1, 2024, salaried workers earning less than $43,888 per year ($844 per week) became eligible for overtime pay.
On January 1, 2025, the minimum salary threshold will rise again to $58,656 per year ($1,128 per week).
The rule also increased the annual compensation required for the highly compensated employee exemption. This went up from $107,432 per year to $132,964 per year on July 1, 2024, and further increase to $151,164 per year on January 1, 2025.
In addition to these updates, starting on July 1, 2027, the minimum salary level will be adjusted every three years. This adjustment will be based on worker salary data and will ensure that the thresholds remain current with wage trends.
Impact on Employers
For employers, this change means that many salaried employees who were previously exempt from overtime pay may now need to be reclassified or given a pay increase to meet the new threshold. Employers should have begun the July 2024 implementation to avoid potential compliance issues.
There are a few key steps that employers should take:
Review and Update Employee Classifications: Ensure that all employees currently classified as exempt meet the new salary requirements. This is an important step, as employees must not only meet the new salary threshold but also continue to primarily perform exempt job duties as defined by the DOL.
Plan for Pay Adjustments or Reclassifications: Employees who fall below the new salary thresholds will either need to be reclassified as non-exempt or have their pay raised to meet the new minimums. Employers should carefully evaluate which option makes the most sense based on their workforce and financial considerations.
Monitor State and Local Law: In addition to the federal requirements set by the DOL, state and local laws may impose even stricter salary thresholds or additional duties tests for exempt employees. Employers must stay vigilant in ensuring compliance with all applicable regulations.
Looking Ahead: Triennial Adjustments
The triennial adjustments starting in 2027 are a significant change aimed at keeping the minimum salary threshold in line with wage growth. This means employers will need to regularly revisit their salary structures every few years, as the minimum salary requirements for exempt employees will not remain static.
Conclusion
The DOL’s new rule is a significant shift in the way businesses classify employees for overtime exemptions. Employers must have already taken proactive steps to ensure compliance by reviewing salaries, considering reclassifications, and staying informed about state and local law requirements. With the July 2024 deadline and the additional increases planned for 2025 and beyond, businesses should already be implementing these changes.
By understanding and adapting to the new regulations, employers can avoid penalties and ensure they are treating their employees fairly in accordance with the law; accounting and payroll is what we are passionate about. CPA by Choice is continuously monitoring updates from the IRS and the Department of Labor (DOL) to ensure that our clients are up-to-date and compliant. Please call us/message us if you need our assistance and allow us to take care of your payroll and accounting needs.
Comentários