Phase two of changes to the federal minimum salary requirements for exempt employees are underway. Your business must act now to stay compliant. The new rules require careful planning to ensure your workforce is properly compensated under the Fair Labor Standards Act. Here’s what you need to know about the upcoming changes, how they affect your business, and the steps to take to comply.
What’s changing with the federal minimum salary requirements and when?
The U.S. Department of Labor recently updated the federal minimum salary requirements for exempt employees. The changes are rolling out in two phases:
- Phase 1: Effective July 1, 2024, exempt employees must be paid at least $43,888 per year. Your business should have increased wages to meet phase one of the exempt employee salary threshold requirements, if needed.
- Phase 2: Effective January 1, 2025, exempt employees must be paid at least $58,656 per year. With this deadline just around the corner, now is the time for your business to start making any more necessary changes to comply.
This increase is equivalent to the federal minimum wage for salaried workers and ensures fair compensation for exempt employees.
What is an exempt employee?
This classification covers executive, administrative, professional, or outside sales employees who are paid a salary and are not eligible for overtime.
Who is affected by the exempt employee salary threshold?
The new salary threshold changes for exempt employees apply to all U.S. employers, regardless of business size or industry. If you have exempt workers who are paid on a salary basis, they must meet the new minimum salary levels.
Exceptions to new federal minimum salary requirements
Some states have set higher exempt employee salary thresholds than the federal requirements. In these cases, employers must comply with the higher state threshold.
For example, if your business operates in California, where the minimum salary for exempt employees is already above the federal limit, you must follow California’s law. States with higher thresholds include:
- Alaska
- California
- Colorado
- New York
- Washington
Additionally, certain professions, such as computer professionals and highly compensated employees, may have different salary requirements. An HR services provider can help you determine which laws are applicable to your business.
Why compliance is crucial
Failing to comply with federal (or state) salary requirements could result in serious consequences for businesses. Employers who do not meet the minimum salary thresholds must pay back wages to underpaid employees. This could also include penalties and interest if an investigation reveals the violation was intentional.
Employees can file wage claims with the Department of Labor if they believe they are paid below federal or state requirements. For larger businesses, non-compliance could lead to class action lawsuits from groups of underpaid employees.
Staying compliant is not only a legal obligation. It’s also a safeguard against potential financial and reputational risks.
How to comply with the new federal minimum salary requirements
To ensure your business complies with the new federal minimum salary requirements for exempt employees, follow these steps:
- Review employee classifications: Now is a great time to review your workforce and ensure all exempt employees are properly classified. Some employers incorrectly classify employees as exempt to avoid paying overtime, which can lead to compliance issues.
- Check salaries: Look at your employee census data and identify those classified as exempt but earning less than the new federal or state minimum salary thresholds. You’ll need to increase their salary by July 1, 2024, and January 1, 2025, respectively.
- Adjust compensation or classification: Consider reclassifying employees as non-exempt if meeting the new exempt employee salary threshold isn’t feasible. This means paying them an hourly wage, tracking their hours, and making them eligible for overtime.
- Account for state laws: Be aware of state-level requirements that may affect your compliance. Many states have their own salary thresholds that exceed federal minimums, and you must follow the state rules, if higher.
Need expert HR help?
Navigating the new salary threshold changes for exempt employees can be complex, especially when state laws come into play. Escalon’s People Operations team can help your business ensure compliance and avoid costly penalties. We can assist you with:
- Reviewing employee classifications to confirm they are properly categorized as exempt or non-exempt.
- Performing salary reviews to determine if any employees fall below the new thresholds and advising on compensation adjustments.
- Providing ongoing compliance support as laws continue to evolve.
If you need expert guidance on the new federal minimum salary requirements for exempt employees, contact Escalon today. Our professionals can cover all your essential back-office HR needs to help your business stay on track.
