Increase in Minimum Salary Threshold for Employees
It is likely that the minimum salary you are required to pay your salaried employees will see an increase. The Fair Labor Standards Act (FLSA) mandates certain guidelines for employers, including rules for overtime pay, minimum wages, and determining whether an employee is exempt or non-exempt from receiving overtime pay. A new bill proposed in Congress could bring significant changes to the exempt salary threshold. Here is what you should know about it.
What are the existing regulations?
According to the FLSA, businesses must pay employees a minimum hourly wage and provide overtime pay if they earn less than the threshold for exempt employees. Non-exempt employees are eligible for overtime pay, while some salaried employees are exempt from these FLSA overtime rules.
An employee qualifies as exempt if they:
- Are paid on a salary basis
- Receive at least the minimum weekly salary specified by the FLSA
- Perform specific duties or hold certain positions (administrative, executive, or professional)
Currently, the FLSA states that employees must be paid a minimum salary of $684 per week ($35,568 per year) to be considered exempt.
What does the new proposal entail?
The newly proposed bill in Congress suggests raising the weekly rate from $684 to $900-1,000 per week ($46,800-52,000 per year) for exempt employees. This increase in the exempt salary threshold would be implemented immediately, followed by annual increments of around $10,000 per year until 2026. The proposal may also include automatic, periodic increases based on market data.
The objective of this proposal is to make a larger number of employees eligible for overtime pay by substantially raising the minimum weekly salary.
When the Restoring Overtime Pay Act of 2023 becomes effective, the exempt salary will be set at $45,000 per year, and the following schedule will be followed:
January 1, 2024: $55,000 per year exempt salary threshold
January 1, 2025: $65,000 per year exempt salary threshold
January 1, 2026: $75,000 per year exempt salary threshold
How should you prepare?
A recommended initial step is to identify which exempt employees currently earn between $684 and $1,000 per week to determine who will be affected by these changes. If the bill passes, you will need to either increase their weekly rate or reclassify them as non-exempt.
As an employer, you will have several decisions to make, whether or not your employees undergo a change in their employment status. If an employee transitions from exempt to non-exempt, what rate will you pay them, considering the added requirement of overtime pay? If you raise their pay to maintain their exempt status, what benefit packages are you willing to sustain along with the higher pay rate?
- You can provide salary-based compensation to non-exempt employees as long as it meets the minimum wage and overtime criteria.
- State and city-specific policies vary in terms of minimum wage, salary thresholds, exemptions, and exceptions. It is crucial to check the policies applicable to your state and city.
- Effective planning is vital. If this bill is passed, your current compensation program may no longer be feasible for your company. It is worthwhile to brainstorm alternative plans to help your company recover from these changes as quickly as possible.