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The annual salary for a college administrative specialist is $43,000. Because her compensation exceeds $35,568 per year, she is not eligible for overtime pay under the Fair Labor Standards Act regulations, as amended in 2019.
But thanks to a recent announcement from the U.S. Department of Labor, that will change in less than a month. The agency announced this. Overtime Pay Eligibility Update Final RuleIt increases the FLSA's minimum salary threshold through two changes that will take effect over the next few months.
July 1st marks the first increase from the current minimum of $35,568 per year to $43,888 per year. After that, Next, the threshold increases to $58,656 per year. It is approximately 65% higher than the current standard as of January 1, 2025, and will automatically increase every three years thereafter using a formula outlined by the DOL.
The university's HR department, which houses the hypothetical administrative professional, now has a series of choices to make. Employees can maintain their current salary level and transition from exempt to non-exempt status to receive overtime pay. Alternatively, the college could increase her salary beyond the new threshold to allow her to maintain her exempt status.
But assuming they choose the latter, should the university raise employees' salaries to meet the July standards, or should they raise them further? For example, a university may choose to increase salaries beyond the January threshold in anticipation of rule changes in 2025. Or you could wait to see if some or all of the rules are struck down in court.
There is more to this decision than employers may realize, considering everything from the organization's financial ability to increase wages to the extent to which employees value being viewed as salaried professionals.
The American Council on Education, higher education's top lobbying group, noted that the change “will have significant budget, program, and human resources implications for colleges and universities.” And at least one higher education expert has advised more colleges and universities to consider mergers. That's because the rules could increase the number of institutions that are already struggling. financial woe.
To help readers better contextualize those decisions, HR Dive spoke with an employment law attorney who broke down the process step by step.
Step 1: Identify affected employees
Employers should first identify the population of employees who are no longer classified as exempt based on their salary level, said Brett Coburn, partner at Alston & Bird.
It's a basic step, but employers need to know how many employees have wages that are lower than what will be raised in order to assess the size of a potential wage increase, Coburn said.
As a side note, an employee's salary is only one component in determining whether a person meets the criteria for exemption under the FLSA. There is also FLSA’s “Mandatory Testing” There are also provisions that require an employee's job to meet certain exemption requirements.
“That’s still a big part of it for me,” said Deanna Kempinski, senior manager in Baker Tilly’s HR advisory practice. He added that employers may overlook job aspects of overtime entitlement. “It’s a great opportunity to set the bar through job titles and job descriptions, and employers should take the time to evaluate each role.”
Although the DOL's most recent overtime regulations did not change the FLSA's job tests, changes in overtime regulations may nonetheless provide opportunities to: Identify potentially misclassified employees If the obligation does not meet the applicable requirements.
“Some of these may not be exempt,” Coburn said. “It could be a gray area.”
Step 2: Crunch the numbers and analyze the potential effects.
Next, employers must determine whether the difference is hundreds or thousands of dollars to keep employees' wages above the new threshold, Coburn said.
One aspect to consider is how the affected employee's salary compares to other employees in the same role. If an employee's salary is lower than comparable salaries, it may indicate a more serious pay equity issue. “By giving employees a raise, we have an opportunity to alleviate or address equal pay issues,” Coburn said.
In some cases, you may find that your employer is already planning to give raises to employees whose salaries fall below the new threshold. But even the planned wage increases could raise concerns about wage pressures, said Jeff Brecher, co-chair of Jackson Lewis' Wage and Hours Practice Group.
In particular, if an employer decides to raise an employee's pay to maintain the overtime exemption, others who currently make more money than that employee may become dissatisfied, Brecher said. And given that future overtime exemption threshold increases under the new rules are planned beyond 2025, employers may need to think about what today's increase could mean for future pay policies, he added.
Another approach to increasing pay is to restructure an employee's total compensation, according to Coburn. This is especially true if your compensation package includes many bonuses or other incentives. In that case, employers would be able to “push some of that up front into regular pay,” he said. However, if incentive structures are viewed as contributing to employee productivity, these changes may lead to productivity problems.
The alternative is to keep currently exempt employees on their current salary and transition them to non-exempt status in time for the July 1 rule change. Eligibility for overtime pay It is paid at 1.5 times the regular benefit rate.
In addition to the need to train converted employees on punctuality logistics, there are also morale implications. While some salaried employees may welcome the change, others may feel they are being demoted or may no longer be able to take advantage of the work flexibility their exemption status previously allowed, Brecher said.
“An exempt employee’s work flow can be fluid, and employees have the flexibility to decide how they want to complete their work that month based on their circumstances,” he continued. “You lose a little bit of flexibility.”
Switching to non-exempt status can also affect other benefits, Brecher said. For example, exempt employees may have more vacation time than non-exempt employees because of their job structure. Employees who are reclassified may lose their benefits.
Salary roles are not always compatible with non-exempt status, Coburn said. Currently exempt employees may perform work that requires frequent checking of messages or email late in the evening or on weekends. Coburn said these tasks can be difficult to track for timekeeping purposes, and employees currently in exempt roles may not have the frame of mind to record them accurately.
Step 3: Be prepared – even if litigation is imminent
The DOL's overtime rule faces legal action that could delay its effective date. business group A lawsuit was filed in Texas federal court. On May 22, it asked the court to block this regulation from taking effect.
In an email to HR Dive, Coburn said news of the lawsuit did not change guidance for employers on the topic, adding that employers “should definitely be in a wait-and-see mode” while they continue to prepare for July 1. Threshold update.
That's partly because the court may not rule before the effective date, but Coburn also said the January 2025 standard was the main focus of the May 22 filing, with “little discussion” about the July 1 update.
“In short, we think employers should prepare for July increases and take into account all the factors we discussed earlier this week. “Making meaningful rulings in new cases,” Coburn wrote.
Brecher said a Texas federal court is more likely to block the January 2025 increase than the July one. Large employers may find it particularly difficult to reverse changes made before the deadline, and if an injunction was issued anyway, employers may not have much time to reverse it, he added. In 2016, a federal court issued an injunction against the Obama administration's final overtime rule. It came just days before the rules took effect..
Step 4: Prepare your communication strategy
How employers communicate changes related to overtime regulations will depend on the number of employees affected and the geographic distribution of those employees, according to Coburn.
If the total number of employees is very low, the HR team can inform employees of changes through one-on-one meetings attended by managers. But for larger groups with a lot of affected employees, “you'd probably start by communicating in writing to that group and then do some specific training,” Coburn said.
He added that these communications should be sent to all affected employees and should include an explanation of why the changes are occurring and, if applicable, the organization's expectations about maintaining accurate time.
“All of this needs to be communicated in writing and followed up with actual training so people are clear on what the expectations are, and you need to follow up with documentation that training has taken place,” Coburn said. “You want to avoid people who say, ‘No one ever told me.’”
Brecher said HR should be ready to answer any questions employees have, and a more robust option would be to host a webinar or similar presentation explaining the changes.
Employers may also consider creating a question-and-answer document that employees can refer to as changes approach, Kempinski said. These documents may be written to cover as many bases as possible, but they cannot cover every individual situation.