Employers of salaried workers earning less than $58,656 should begin preparing either to increase the compensation or reclassify and pay those workers as hourly and entitled to overtime to comply with a final rule that will twice raise the salary thresholds required to exempt a salaried bona fide executive, administrative or professional employee from federal overtime pay requirements between July 1, 2024 and January 1, 2025.
Effective July 1, 2024, the final rule adopted April 23, 2024 will increase the salary threshold from the equivalent of an annual salary of $43,888 from the current required salary threshold of $35,568. Thereafter, the final rule further raises the salary threshold to the annual salary equivalent of $58,656 on January 1, 2025.
The July 1, 2024 salary threshold increase is based on the methodology adopted during the Trump administration in the 2019 overtime rule update. Beginning January 1, 2025, the final rule adopts a new methodology, resulting in the additional increase. In addition, the final rule will adjust the threshold for highly compensated employees. Starting July 1, 2027, salary thresholds will update every three years, by applying up-to-date wage data to determine new salary levels.
The impending changes will require employers currently employing salaried workers with annual salaries below the threshold either to increase their salaries above the threshold or to reclassify and compensate them as non-exempt employees, subject to the minimum wage and overtime requirements of the Fair Labor Standards Act (“FLSA”).
When considering whether to raise salaries or reclassify, an employer should begin by reevaluating whether its salaried employees continues to meet the job duty tests to qualify for salaried status. The review of fulfillment of the job duties test should encompass both workers directly employed as employees on the employers payroll and any workers secured through contingent, workforce, employee leasing, staffing, manpower, consultant, independent contractor, or other similar service arrangements where the potential exists for reclassification of the worker as a employee of the employer or the employer as a joint employer of the employee taking into account, the more aggressive characterization enforcement positions of the Biden Administration.
Employer should conduct this review on all salaried employees, not just those whose current salary is below the upcoming increased minimum level. Reevaluation of the defensibility of all salaried workers classification is recommended because many employers mistakenly misclassify workers as salaried rather than hourly due to an overly optimistic misunderstanding of the duties requirements for a worker to qualify as salaried. The risk of misclassification is heightened under the current administrations enforcement policies. Employers who make this mistake already, or at risk for wage an hour liability for record-keeping and overtime violations for these misclassified workers. Raising the salary of a misclassified worker will only make matters worse by increasing the overtime liability that the employer will be required to pay for failure to pay overtime after the increased takes effect.
An employer should work within the scope of attorney-client privilege to conduct this analysis and implement any necessary reclassification of currently salaried workers to hourly and other steps advisable to mitigate and resolve liabilities relating to employees currently classified as salaried identified as at risk of misclassification.
Once an employer verifies that the salaried worker continues to meet the job duties test to qualify for salary status, the employer next should consider whether to reclassify or increase the salary of any salaried employees currently earning less than the increased minimum salary.
For salaried employees whose job duties make their job classification questionable, employers should work with counsel to evaluate whether restructuring of jobs could make the classification more defensible, eliminate, or reduce required overtime, or otherwise mitigate the effective reclassification or maximize the ability to defend the salary classification.
Next, an employer should analyze the economics taking into account historical and projected overtime hours of work for employees currently earning less than the minimum salary whose job duties defensively satisfy the salaried job duties test. This evaluation should compare the employer’s projected costs to employ the employee:
- At an increased salary above the new minimum; versus
- As an hourly employee taking into account projected overtime.
Under certain circumstances, it also may be possible to utilize rules to treat the employee as salaried, non-exempt. Employers also should consider the likely perceptual impact of the reclassification on effected workers. Many times workers view classification as salaried as a status, symbol. Particularly where workers do not work a lot of overtime, reclassification from salary to hourly status may be perceived as a status demotion by some workers. Experienced legal counsel may offer various options to assist in mitigating costs and other impacts of reclassification. Morale issues relating to the reclassification or other aspects of the workplace could create a heightened risk of scrutiny of the employers or past work classification and overtime pay requirements. As reclassifications also could result in unintended discriminatory practices, employer should work with counsel to review and document the defensibility of any job restructuring or reassignments under applicable employment discrimination laws. The employer’s planning process should anticipate these risks and utilize appropriate risk management procedures.
For employees to be reclassified from salary to hourly, employers also also must implement appropriate recordkeeping to meet the FLSA recordkeeping requirements.
Beyond complying with the applicable requirements of the FLSA, impacted employers also will want to reevaluate their budgeting, pricing, and other financial assumptions and practices in preparation of the implications of these increases.
Businesses using contract or other outsourced labor arrangements also will want to ensure that their suppliers are appropriately classifying and paying workers in response to this new adjustment. Biden Administration rules for classifying workers as employers and joint employers make it easier for recipients of these types of services to be held accountable for noncompliance with their suppliers.
Analysis generally should be conducted within the scope of attorney client privilege because of the possibility that sensitive information about worker classification or misclassification other evidence may be uncovered and discussed.
For More Information
We hope this update is helpful. For more information about these or other health or other legal, management, or public policy developments, please get in touch with the author Cynthia Marcotte Stamer via e-mail or via telephone at (214) 452 -8297.
Solutions Law Press, Inc. invites you to receive future updates by registering on our Solutions Law Press, Inc. Website and participating and contributing to the discussions in our Solutions Law Press, Inc. LinkedIn SLP Health Care Risk Management & Operations Group, HR & Benefits Update Compliance Group, and/or Coalition for Responsible Health Care Policy
If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your current contact information including your preferred e-mail by creating your profile here.
About the Author
Recognized by her peers as a Martindale-Hubble “AV-Preeminent” (Top 1%) and “Top Rated Lawyer” with special recognition LexisNexis® Martindale-Hubbell® as “LEGAL LEADER™ Texas Top Rated Lawyer” in Health Care Law and Labor and Employment Law; as among the “Best Lawyers In Dallas” for her work in the fields of “Labor & Employment,” “Tax: ERISA & Employee Benefits,” “Health Care” and “Business and Commercial Law” by D Magazine, Cynthia Marcotte Stamer is a practicing attorney board certified in labor and employment law by the Texas Board of Legal Specialization and management consultant, author, public policy advocate and lecturer widely known for 35 plus years of health, employee benefits, insurance, hospitality, retail, construction and other industry management work, public policy leadership and advocacy, coaching, teachings, and publications.
A Fellow in the American College of Employee Benefit Counsel, Co-Chair of the American Bar Association (“ABA”) International Section Life Sciences and Health Committee and Vice-Chair and Chair Elect of its International Employment Law Committee, Chair of the ABA TIPS Section Medicine & Law Committee, Past Chair of the ABA Managed Care & Insurance Interest Group, Scribe for the ABA JCEB Annual Agency Meeting with HHS-OCR, past chair of the ABA RPTE Employee Benefits & Other Compensation Group and current co-Chair of its Welfare Benefit Committee, and Chair of the ABA Intellectual Property Section Law Practice Management Committee, Ms. Stamer has decades of experience advising employers, investigating and helping employers to defend wage and hour, worker classification, discrimination and other labor and employment, employee benefits and other compliance.
Ms. Stamer’s work throughout her career has focused heavily on working with health care and managed care, life sciences, health and other employee benefit plan, insurance and financial services and other public and private organizations and their technology, data, and other service providers and advisors domestically and internationally with legal and operational compliance and risk management, performance and workforce management, regulatory and public policy and other legal and operational concerns. Her experience includes extensive involvement advising clients about preventing, investigating and defending EEOC, DOJ, OFCCP and other Civil Rights Act, Section 1557 and other HHS, HUD, banking, and other federal and state discrimination; EBSA, IRS, and PBGC employee benefit; WHD, CAS, Davis-Bacon and other federal and state wage and hour and other compensation; OSHA and other investigations, audits, lawsuits and other enforcement actions as well as advocacy before Congress and regulators regarding federal and state equal opportunity, equity and other laws.
For more information about Ms. Stamer or her health industry and other experience and involvements, see www.cynthiastamer.com or contact Ms. Stamer via telephone at (214) 452-8297 or via e-mail here.
About Solutions Laws Press, Inc.™
Solutions Law Press, Inc.™ provides human resources and employee benefit and other business risk management, legal compliance, management effectiveness and other coaching, tools and other resources, training and education on leadership, governance, human resources, employee benefits, data security and privacy, insurance, health care and other key compliance, risk management, internal controls and operational concerns. If you find this of interest, you also be interested in reviewing some of our other Solutions Law Press, Inc.™ resources available here, such as:
- Manage Health Plan HIPAA, ERISA & Other Exposures From Change Healthcare Ransomware Attack
- Wage & Hour Takes Aim At Restaurant & Other Hospitality Employers
- Prepare Defenses Against Rising Religious Discrimination Exposures
- Restaurant Pays $167K In Back Wages & Damages For Overtime Violation
- ICE Updates Forms I-942 and I-881
- $160K HIPAA Penalty Warns Health Plans & Other Covered Entities Deliver Timely Protected Health Information Acces
- OSHA Enforces Whistleblower Rights Of Worker Terminated For Expressing COVID-19 Safety Concerns
ABOUT THIS COMMUNICATION
If you or someone else you know would like to receive future updates about developments on these and other concerns, please be sure that we have your current contact information including your preferred e-mail by creating your profile here.
NOTICE: These statements and materials are for general informational and educational purposes only. They do not establish an attorney-client relationship, are not legal advice or an offer or commitment to provide legal advice, and do not serve as a substitute for legal advice. Readers are urged to engage competent legal counsel for consultation and representation in light of the specific facts and circumstances presented in their unique circumstances at any particular time. No comment or statement in this publication is to be construed as legal advice or an admission. The author and Solutions Law Press, Inc.™ reserve the right to qualify or retract any of these statements at any time. Likewise, the content is not tailored to any particular situation and does not necessarily address all relevant issues. Because the law is rapidly evolving and rapidly evolving rules make it highly likely that subsequent developments could impact the currency and completeness of this discussion. The author and Solutions Law Press, Inc.™ disclaim, and have no responsibility to provide any update or otherwise notify anyone of any such change, limitation, or other condition that might affect the suitability of reliance upon these materials or information otherwise conveyed in connection with this program. Readers may not rely upon, are solely responsible for, and assume the risk and all liabilities resulting from their use of this publication. Readers acknowledge and agree to the conditions of this Notice as a condition of their access to this publication.
Circular 230 Compliance. The following disclaimer is included to ensure that we comply with U.S. Treasury Department Regulations. Any statements contained herein are not intended or written by the writer to be used, and nothing contained herein can be used by you or any other person, for the purpose of (1) avoiding penalties that may be imposed under federal tax law, or (2) promoting, marketing or recommending to another party any tax-related transaction or matter addressed herein.
©2024 Cynthia Marcotte Stamer. Limited non-exclusive right to republish granted to Solutions Law Press, Inc.™
slphrbenefitsupdate.com 