By: Tiffany Allen, Esquire
Published on: Mon 7th Oct, 2024 By: Campbell Durrant, P.C.
The U.S. Department of Labor (DOL) issued a new final rule delimiting the exemptions for Executive, Administrative, and Professional (EAP) employees and outside sales, computer, and highly compensated employees who have traditionally been exempt from overtime compensation. The final rule, which took effect on July 1, 2024, provides that in order for an employee in one of these categories to be considered exempt from the overtime and minimum wage requirements of the Labor Standards Act (FLSA) they must earn a base salary of $43,888. The base salary threshold for these exempt employees will increase again on January 1, 2025, to $58,656. Three lawsuits have been filed challenging the final rule; however, those suits have not resulted in a nationwide injunction of the rule. For now, municipal employers in Pennsylvania must continue their preparation to comply with the increased salary thresholds that take effect on January 1, 2025. You can read more about the final rule here.
As municipal employers prepare to submit their fiscal budget for 2025, there are still questions about the impact of the impending salary increase on their bottom line. Employers who were able to comply with the final rule on July 1, 2024, are again tasked with reviewing their payroll processes, overtime policies, and departmental budgets, to ensure employees are properly classified on January 1, 2025. For some, a new class of previously exempt employees will now become nonexempt due to the impending salary increase. Employers who have exempt employees can respond to the updated thresholds by increasing salaries to allow exempt employees to maintain their status. However, for some employers, two salary increases in six months may be impractical.
Employers who cannot provide 2025 salary increases to this new class of nonexempt employees should consider other creative measures to ensure compliance with the final rule. These measures include creating and implementing overtime policies that mandate managerial approval of overtime hours worked by nonexempt employees. If a policy already exists, the newly nonexempt employees and their supervisors should receive notice of the overtime policy and training on how the policy could impact their work week. For some employers, the payment of overtime may cost less than increasing the base salary and the January 1, 2025, salary increase may have little to no impact on the budget. However, it is important to consider alternatives such as providing compensatory time in lieu of overtime wages, nondiscretionary bonuses, and incentives to make up for no more than ten percent (10%) of the minimum salary threshold, and even reducing the base salary to make up for the anticipated overtime wages earned by employees who often work over 40 hours a week. The implementation of one or more of these options will allow exempt employees to keep their status while minimizing significant impacts to the budget.
Creating safeguards now will be helpful as the DOL has already announced that another increase to the base salary threshold will go into effect again on July 1, 2027, and every three years thereafter. Employers should consider implementing a combination of these recommendations to ensure continued compliance.
Takeaways:
• Review base salary and classifications of exempt employees to ensure compliance with the impending January 1, 2025, salary increase.
• Consider creating overtime policies for employees that require managerial approval of overtime hours.
• Consider alternative options such as providing compensatory time in lieu of overtime, increasing base salaries, or a combination of options.
• The plans put in place now can help employers prepare for future increases to base salary.
Bottom Line:
The DOL is set to implement an increase to the base salary for exempt employees on January 1, 2025. As government employers work to complete their 2025 budget, it must consider the budgetary impact of the new rule as employees who were previously exempt may be reclassified as nonexempt under the new final rule. Employers should begin creating and implementing safeguards as the DOL intends to increase the salary thresholds against on July 1, 2027, and every three years thereafter.
