Exempt vs. Non-Exempt- What should we do?

On April 2023, 2024, the Department of Labor announced a final rule that will SIGNIFICANTLY increase the FLSA’s minimum salary threshold requirements for employees to be classified as "exempt" from overtime.

Two Stages:

The increase will come in two stages, the first will be effective July 1, 2024, and the second increase will be effective on January 1, 2025. The rule also calls for future automatic increases to the minimum salary threshold every three years.

Current Threshold = $35,568

• July 1, 2024 = $43,888 (23% increase over current)January 1, 2025 = $58,656 (65% increase over current)Starting July 1, 2027 the minimum salary will update every 3 years.

How to Prepare:

Complete an Audit of your current state. Review all exempt employee’s compensation levels. Identify any employees compensations levels that fall below the new rates, for both the 7/1/24 and 1/1/25 benchmarks.

• Re-Assess Exemption Status based upon the FSLA criteria (not changing).Give special consideration to “Borderline Jobs,” such as administrative support, entry-level professionals, paraprofessional, etc. Refer to the DOL’s Quick Reference Guide here: Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act (FLSA) | U.S. Department of Labor (dol.gov)
• Develop a Cost Impact Analysis once the exempt employees falling under the new thresholds are identified. Use this analysis to determine either: Increase base salary to comply with the new threshold. Convert status to non-exempt-- be sure to calculate an estimate of overtime hours to compare the cost of the salary increase vs. the cost of overtime.
• Make Decisions and Implement via a STRONG Communication Plan. The importance of having a strong communication cannot be understated, as it is essential to inform the workplace of any changes and explain WHY. If re-classifying to non-exempt, consider 3 key points: training for employees on tracking hours training for managers to monitor hours and control overtime, expenses, etc. may need to consider increasing staff levels to control overtime, and/or the re-alignment of duties, ie: Higher level duties to exempt staff, Lower Level duties to non-exempt staff.

Although there is talk that this ruling may not happen (flashback to 2016 when the increase in salary threshold was injuncted at the last minute, we need to be prepared!!! Taking NO action could result in millions in liability exposure.

Contributed by: Amy Petrus, YPHR Partner and President of Petrus HR Solutions. Amy is a seasoned Human Resources Consultant with over 25 years of experience with the past 20 years in consulting roles including time at KPMG and ERC (Employers Resource Council) and currently, as a partner in the Your Partner In HR consortium.?

She began her career as an HR Generalist and has served as HR Manager and HR Director for organizations.? Amy manages a full spectrum of HR-related projects and programs serving a client base that represents a wide range of industries including service, nonprofit, education, technology, and manufacturing organizations.

Amy’s primary area of expertise is compensation; she specializes in the development and implementation of fair and market competitive base salary systems as well as incentive compensation. Amy also handles projects addressing performance management, recruiting process and strategy, employee relations / engagement (stay interviews, exit interviews), and job descriptions.?

Amy earned a Master’s Degree in Human Resources and Labor Relations from Cleveland State University and a Bachelor of Science Degree in Business from Miami University. She holds the designations of Certified Compensation Professional (CCP) through World at Work, the Senior Professional in Human Resources (SPHR) through the HR Certification Institute? - HRCI?, and the Society for Human Resource Management Senior Certified Professional (SHRM-SCP). In 2012, Amy was selected by the Cleveland Society for Human Resource Management as the recipient for the “HR Awards” in the area of Compensation.

Amy is actively involved in the Greater Cleveland community and the HR industry. She is a member of the Board of Directors for the Beck Center for the Arts and serves on their Human Resources Committee.?Amy serves on the committee of the Cleveland SHRM Total Rewards Special Interest Group. She is also a member of the HR Leadership Group of Northeast Ohio and the Greater Lorain County SHRM Chapter.?