Update as of November 15, 2024: FLSA Salary Threshold Increases Blocked Nationwide. Read More

As the year comes to a close, there’s a major change looming on the horizon for employers across the United States. Starting January 1, 2025, the minimum salary for most overtime-exempt employees under the Fair Labor Standards Act (FLSA) is set to rise to $58,656 per year. If this news sounds familiar, it’s because this increase is part of the U.S. Department of Labor’s (DOL) ongoing efforts to ensure that employees are fairly compensated for the work they do.

This change will impact millions of workers—potentially 3 million additional employees—and employers need to be ready. It’s not just a matter of meeting the new salary requirements but also ensuring compliance with employee classification and overtime rules. Failing to do so can lead to expensive lawsuits and penalties. So, how can employers get ahead of this change? Let’s break down the key details and action steps needed before the new threshold takes effect.

The New Salary Threshold and Its Impact

The FLSA establishes minimum wage, overtime pay, and other labor standards affecting both full-time and part-time workers in the private and public sectors. Among these rules are salary requirements for employees classified as “exempt” from overtime. Currently, the salary threshold for exempt employees is $48,888 per year, but that will increase to $58,656 on January 1, 2025.

To be clear, employees who earn less than the new threshold will automatically be classified as non-exempt, meaning they must be paid overtime for any hours worked beyond 40 in a workweek. For many businesses, this means making critical decisions, including whether to:

– Raise employees’ salaries to meet the new threshold.

– Reclassify employees as non-exempt, making them eligible for overtime.

– Adjust work schedules or redistribute responsibilities to avoid additional overtime costs.

The financial impact is significant. The DOL estimates that this rule will increase total salaries by $1.5 billion across the U.S. workforce. Whether you’re a large company with many employees affected or a small business managing a few salaried workers, the new threshold could have a substantial impact on your payroll and budgeting.

Preparing Your Organization for the Change

While January 1st may seem a few months away, the time to prepare is now. Employers should begin evaluating their workforce, reviewing employee classifications, and determining how best to comply with the new salary threshold. Here are some steps to help ensure a smooth transition:

Audit Employee Classifications: First, ensure that all exempt employees are correctly classified. This includes reviewing job descriptions and actual duties performed to ensure they align with the FLSA’s exemption criteria. Misclassification of employees as exempt when they do not meet the salary or duties tests can result in costly penalties.

Evaluate Compensation Plans: For employees who currently earn less than the new threshold, decide whether to raise their salaries to maintain exempt status or reclassify them as non-exempt. For some organizations, a salary increase may be more cost-effective than managing overtime pay, while others may find that reclassification makes more sense.

Reorganize Workloads: If you choose to reclassify employees as non-exempt, consider adjusting their workloads or hiring additional staff to distribute hours more evenly. This can help you avoid excessive overtime costs, which could become a significant expense if not managed properly.

Develop a Communication Strategy: Employees will have questions about how these changes affect them, especially if they are reclassified as hourly workers. Open, honest communication is key. Explain the reasons behind the changes and how their roles will evolve, whether it’s a salary increase, reclassification, or shift in responsibilities. Reassure them that the change is part of a broader legal compliance effort rather than a reflection of their performance.

Update Policies and Guidelines: If employees are moved from exempt to non-exempt status, it’s essential to update workplace policies. This includes clarifying overtime rules, timekeeping procedures, and expectations for after-hours work. Remember that non-exempt employees must be compensated for any work performed outside of regular hours, including responding to emails or calls after hours.

Navigating Legal Considerations

One legal pitfall that employers must avoid is restricting employees from discussing their pay. Under the National Labor Relations Act (NLRA), employees have the right to talk about their wages and working conditions with their coworkers. It is illegal for employers to prohibit these discussions, and doing so can result in legal action.

Additionally, when reclassifying employees or adjusting pay, be mindful of pay equity issues. The increase in the salary threshold may create situations where long-term employees are earning the same as newly hired employees. To address this, consider offering existing employees raises or additional benefits, such as more vacation time, to offset any feelings of pay inequity.

The Countdown Begins: Don’t Wait Until the Last Minute

The upcoming FLSA salary threshold increase is more than just a policy shift—it’s a change that requires thoughtful planning, budgeting, and communication. With January 1, 2025, fast approaching, the sooner you act, the more prepared your business will be.

Take the time now to:

– Review your employees’ classifications and make necessary adjustments.

– Develop a compensation strategy that works for your business while remaining compliant with the law.

– Engage with employees about the changes and reassure them that these adjustments are part of broader legal requirements.

Ignoring this new rule could lead to significant financial and legal challenges down the road, so don’t delay. By proactively addressing these changes, you’ll ensure a smooth transition for both your business and your employees.

A Turning Point for Employers

The FLSA salary threshold increase represents a turning point for employers across industries. It’s not just about giving employees raises—it’s about ensuring compliance with labor laws and fostering a fair workplace. As the clock ticks down to January 1st, make sure your organization is prepared for the change. With the right planning, communication, and execution, you can navigate this transition successfully while protecting your business from potential pitfalls.

Need help with HR tasks like employee relations and accurate classifications? Connect with one of our small business HR experts.

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