If you pay any employees on salary instead of hourly, as an employer you need to review new regulations released today by the United States Department of Labor, requiring that the salary you pay to any exempt employee is at least $43,888.00 beginning on July 1, 2024. That minimum increases to $58,656.00 on January 1, 2025. Those are substantial increases from $35,568.00, the salary minimum currently required by the Fair Labor Standards Act (“FLSA”), which governs minimum wage and overtime.

If you aren’t paying an employee by the hour, plus overtime pay for each hour over 40 worked in a 7-day workweek, then you must prove the following about that salaried employee:

1. The employee is paid a recurring salary regardless of the hours worked; and
2. The amount that the employee is paid must amount to at least $844 per week beginning on July 1, 2024 and $1128 per week beginning on January 1, 2025; and
3. The salaried employee must primarily perform executive, administrative or professional duties (commonly referred to as the white-collar duties).

These exemptions for salaried, white-collar workers are the exception to the overtime rules required by the FLSA, and the burden is on the employer to show that the salaried employee meets all of these requirements or the business will owe the employee unpaid overtime (plus punitive damages and possible penalties) for not paying overtime.

FLSA has been the law since the 1940’s, but the salary minimum amount to meet the exemptions has increased over time. The Trump Administration increased the salary amount in 2019, and it has stayed there for five years. The Department of Labor’s new rule will make those increases automatic every three years, meaning that on July 1, 2027, you can expect another increase in the salary minimum amount if you still want to claim that the employee is exempt from the overtime requirements.

In addition to meeting the FLSA salary minimum requirement, your employee must also perform white-collar duties to qualify for the overtime exemption. The duties tests are harder to meet than you might expect. For example, you may believe that an assistant manager is an “executive”, but the FLSA duties test says that employee must have the power to hire and fire and must personally supervise at least two full-time employees, as well as being in charge of a recognizable store, division or branch of your business to be considered exempt. Most assistant managers don’t meet those requirements. Only the general manager does in many circumstances.

In addition, the new regulations increase the FLSA salary minimum for “highly compensated employees”. The 2019 threshold for highly-compensated employees currently says that any employee making a salary of at least $107,432.00 per year is exempt as long as the employee is performing non-manual work and that employee performs at least one other exempt duty customarily and regularly (such as managing two employees or performing duties of a professional such as a CPA). The salary minimum for highly compensated employees increases to $132,964.00 on July 1, 2024. On January 1, 2025, it will increase again to $151,164.00.

So what do businesses need to do to get in compliance?

Between now and July 1, 2024, you should be auditing your pay practices to make sure you are paying all salaried employees the new salary minimums. If you have a salaried employee who is making less than the weekly minimum, you will have to decide: Are you going to give your salaried employee a raise to comply with the minimum, or are you going to change their pay to hourly and start paying that employee overtime?

While you are doing that, remember not to violate the Equal Pay Act, which requires that you pay women and men the same salary for performing same or substantially similar duties. You should also brush up on the requirements for paying exempt employees the same salary every week without making illegal deductions from their pay for sick days or a personal half-day off.

Obviously, if you have to move an employee from exempt status (salaried) to non-exempt status (hourly) because of this salary minimum change, you should find a way to clearly communicate that this change is not a demotion, but simply a change in a government regulation. You’ll also need to train anyone moving from exempt status to non-exempt status on your timekeeping rules so that all time worked is properly recorded.

As an employer, probably the most critical duty you have is to pay your employees legally, correctly and promptly on every pay day. There is no tolerance from any governmental agency, including the Department of Labor, the Internal Revenue Service and Texas Workforce Commission, for ever shorting an employee on earned pay.  If you need help or have questions, call an employment attorney immediately to ensure that you are paying all of your employees in compliance with the law.