The upcoming changes to the minimum salary requirements for exempt employees will impact over 3 million employees and up to 5 million in the next 12 months. As an employer, it’s crucial to understand these changes, assess their impact on your organization, and take necessary actions to stay compliant and support your team.
What Are the Changes?
Starting in July 2024 and January 2025, there will be updates to the minimum salary thresholds for exempt employees. Here’s a breakdown of what’s happening:
July 2024 Updates
- New Salary Threshold: The minimum salary threshold will increase to $43,888 from the current $35,000.
- Highly Compensated Employees: The minimum compensation requirement will rise to $132,964.
January 2025 Updates
- New Salary Threshold: The threshold will further increase to $58,656.
- Highly Compensated Employees: The total earnings requirement will jump to $151,164.
These updates aim to ensure that employees receive a fair day’s pay for a fair day’s work. The Department of Labor calculated these figures based on the 20th percentile of the lowest wage census region and will move to the 35th percentile in January 2025.
Why These Changes Matter
Reflecting on my experience as a bar manager earning $25,000 a year in salary and another $10,000 in tips, I realized that I was essentially making around $9 an hour for 60-hour weeks of hard labor. Many workers are still in similar situations, which these changes aim to address by raising the minimum salary thresholds.
What Employers Need to Do
1. Identify Impacted Employees
Start by running reports to determine which employees in your organization will be affected by these changes. Consider their current salaries and the duties they perform to ensure proper classification.
2. Decide on the Best Course of Action
You have a few options when it comes to adjusting to these new regulations:
- Raise Salaries: If employees are close to the new thresholds, consider raising their salaries to meet the new requirements.
- Reclassify Employees: If raising salaries isn’t feasible, you might need to reclassify some employees as non-exempt and start tracking their hours to ensure compliance with overtime regulations.
- Adjust Workloads: If you have several employees who regularly work overtime, consider redistributing workloads or adding new employees to manage the workload better and reduce the risk of burnout and turnover.
3. Avoid Wage Compression
When adjusting salaries, be mindful of wage compression, which occurs when there’s a minimal difference between the pay of employees regardless of their skills, experience, or seniority. Ensure that any salary adjustments maintain appropriate pay differentials to avoid dissatisfaction and retention issues.
4. Ensure Proper Classification
Make sure your employees are classified correctly based on their duties. Exempt employees must meet both the salary and duties tests. Misclassification can lead to significant liabilities in back wages, taxes, and penalties.
Staying compliant with these upcoming changes is not only about avoiding penalties but also about ensuring fair treatment and compensation for your team. At guHRoo Payroll and HR, we have extensive experience helping small businesses navigate HR compliance issues. If you need assistance with these changes or any other HR concerns, visit our website at guhroo.co for more information.
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