By: Michelle J. Douglass, Esq.
For employees and HR teams at small and mid-sized businesses across the country, a recent rule change by the Department of Labor is causing major headaches. On April 23rd, 2024, the DOL announced drastic new requirements for how employers must pay their exempt and non-exempt employees, with an effective date of July 1st, 2024.
The biggest impact is a significant increase to the minimum salary threshold for employees to qualify as exempt from overtime pay under the Fair Labor Standards Act. Currently, employees making over $35,568 per year can be classified as exempt from overtime if they also meet certain duties tests. But as of July 1st, that minimum salary jumps to $43,888 per year ($844 per week). On January 1st, 2025, it rises again to $58,656 annually ($1,128 per week).
For businesses with exempt employees making less than the new thresholds, they face a tough choice – either raise those employees’ salaries to the new minimum level to maintain their exempt status, or reclassify them as non-exempt and pay overtime whenever they work over 40 hours in a week.
“It’s been chaos trying to analyze which of our employees will be impacted and how we should handle each situation,” said Jane Smith, an HR manager at a 150-person manufacturing company in New Jersey. “Some of our plant supervisors make $40,000 a year, so they’ll either need a $4,000 raise or we switch them to hourly and pay overtime. Both options have major cost implications.”
The changes don’t stop there. The DOL also raised the total annual compensation threshold for the “highly compensated employee” exemption from $107,432 to $132,964 on July 1st, rising again to $151,164 on January 1st, 2025. Employees above this higher level have a more relaxed duties test for exempt status.
“I’m honestly losing sleep over this,” said Bob Johnson, an exempt sales manager making $115,000 at a Florida software company. “If my company doesn’t raise me over that new $151,164 line, I may get reclassified based on duties and lose my exempt status. I could be nickel-and-dimed for every extra hour I work.”
The new rules have HR teams scrambling to audit their exempt employees, analyze the potential cost impacts of raising salaries vs. paying overtime, and develop communication plans.
“Change is never easy, but this is an especially tough pill to swallow on short notice,” said Smith. “We’re working around the clock to ensure we’re fully compliant by July 1st and bracing for some very unhappy employees.”
With businesses large and small impacted, the DOL rule is shaking up payrolls and causing major disruption as the clock ticks down to the July 1st effective date. For more information on the new DOL rules, visit www.dol.gov or consult an employment law expert.