On July 1st, 2024, the DOL passed a ruling increasing the minimum salary threshold for exempt/salaried employees. Previously, the law dictated that exempt employees must be paid a minimum of $35,568 annually in order to maintain exemption status. Now, that minimum has been increased to $43,888 annually.
Now that the new overtime rule is in effect, you could face paying thousands of dollars in fines, backpay for overtime and other benefits, and several other fees if found non-compliant. So, what do you need to do to avoid this?
First and foremost, contact your HR provider (they're probably already working on ensuring compliance.) If you do not currently have an HR provider, be sure to find one immediately!
Determine What Needs to Change (if Anything)
A comprehensive audit should be conducted on your employees' classification status and compensation structure. If any exempt employees fall below the new minimum threshold, you'll have one of two options: (1) increase the exempt employee's annual salary to at least the $43,888, or (2) re-classify the exempt employee to non-exempt and begin tracking their time and paying for all hours worked, including overtime.
If an exempt employee meets all other qualifications and you simply increase their salary to the new minimum - you're done! However, if it is determined that you must reclassify any exempt employees to non-exempt, you'll have a few more items to take into consideration.
Timekeeping Requirements
As per the FLSA, employers are required to track and maintain hours worked by nonexempt employees. Doing so will keep up with employees' standard time, overtime, PTO and holiday time to ensure they are compensated correctly each pay period.
So, if an employee was reclassified as non-exempt after the new ruling deemed it necessary, you are now required to have that employee track and submit their time each pay period.
Additionally, you'll want to ensure that employees fully understand how and where to track their time, whether that's via a physical time clock, phone app, or paper timesheet. Stress that failure to track and submit time properly, or falsification of time sheets, will result in disciplinary action.
Overtime Pay
On top of having to track time for nonexempt employees, you will also need to pay overtime for any hours worked above 40 in a workweek. Unlike their exempt counterparts, nonexempt employees must be paid time-and-a-half for all hours above 40, regardless of their reason for working them.
If you're an employer who wants to restrict the amount of overtime worked, consider updating your overtime policy to reflect that any overtime must be approved prior to working above 40 hours, or disciplinary actions may occur. Decide if overtime is essential for your company to operate effectively, and, if so, you may need to hire more workers or adjust worker responsibilities.
Remember that it is illegal not to pay overtime for nonexempt employees in the private sector. This means that you cannot offer PTO time or "comp time" in place of overtime, and overtime must be paid on the same payroll period in which it was worked.
Documentation
Employers who decide to reclassify affected employees should properly communicate all areas of change. Present employees with a document explaining their change in classification, the date it goes into effect, new timekeeping policies (if any), and the employee's responsibilities to uphold these changes/responsibilities. Be sure to have your employees sign an acknowledgment agreeing that they understand the changes.
It is important that such documentation is provided any time there is a change in employee status, pay, job responsibilities, etc. The documentation should remain in the employee's personnel file for the entire employment period, or a period of no less than three years after the employee has been terminated.
Once the proper documentation is obtained, your HR provider will need to go into each affected employee's account in the Payroll and HRIS systems and update classifications, new pay grades (if any), and any changes to benefits.
Updating Your Handbook
Any time there is a change to internal policies and procedures, the Employee Handbook should be updated to reflect those changes.
Consider having your HR provider revise your current handbook to describe FLSA classifications in detail. Make sure the qualifications and requirements for each category are clear and include where additional information can be found. You may also need to add or update the timekeeping procedures and overtime sections.
Conclusion
If you have exempt/salaried employees, you need to take a hard look at how the new DOL rulings affect your business. If you do not have a dedicated HR provider to assist with compliance, be sure to reach out to an experienced, certified professional to assist with compliance.
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