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Michelle Petrazzuolo

The New Salary Threshold




It's an old question - should I classify my employees as exempt or non-exempt?


To review, this classification indicates whether the employee is eligible to earn overtime (non-exempt) or is only paid their weekly salary (exempt). To be clear, a worker can be salaried and non-exempt - these are two different designations. But for an exempt worker, they are only paid their salary, no matter how many hours they work.


Employers often try to pay close attention to this, because overtime is expensive. If you're not required to pay it, it makes sense to save that money. But getting it wrong can be a big expense as well, meaning you've run afoul of the Fair Labor Standards Act (FLSA) and could be subject to penalties, including back taxes.


The way business owners determine this status has to do with two factors - the duties the person performs, and their wages. Some jobs are almost always exempt because of the type of work they do, such as roles the FLSA classifies as "outside sales". Under certain wage amounts, a worker will almost always be classified as non-exempt, and therefore earn overtime.


That's where the big news about the salary threshhold comes into play for us. The US Department of Labor has issued a new rule raising the salary that an employee would need to earn to be exempt, and by quite a lot. The threshhold is also already pegged to increase regularly, meaning employers will need to keep an eye on this to ensure they remain compliant over time.



Before you do too much to make changes, take a pause. This new rule will almost certainly face legal challenges from business groups, which means it could be struck down. However, it's a good idea not to put off your strategy on how to deal with this until the last minute. Calculating how many employees are affected, how much this might cost you, and the best strategy to deal with it, will take time. In some cases, employees who are on the borderline could receive a small pay increase to bump them over the threshold. It might also benefit to hire additional workers to reduce the amount of overtime your staff perform, paying less in straight time (but this must be balanced with benefit costs). In this case, you'll need to take a look at how much overtime people usually do - and how they will feel if it suddenly goes away.


If you've got employees who will be impacted by these new thresholds and want to talk to an expert, reach out to Michelle for help.

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