A Guide for Small Business Owners
As a small business owner, staying informed about changes in labor laws is crucial but ensuring compliance to avoid potential penalties and litigation can be difficult. The Fair Labor Standards Act (FLSA) sets standards for minimum wage, overtime pay, recordkeeping, and youth employment in the private sector as well as in federal, state, and local governments. After many years of debate, the FLSA has introduced new rules for exempt employees that will take effect on July 1 and January 1. New minimum salary standards will need to be met in order to avoid paying overtime pay and the required recordkeeping for non-exempt employees. In this post, we will break down these changes and explain who qualifies as an exempt employee.
Key Changes Effective July 1 and January 1
1. July 1 Changes
Increase in Minimum Salary Threshold: Starting July 1, the minimum salary threshold for exempt employees will be raised. This means that employees must earn a higher salary to qualify as exempt from overtime pay. This increase aims to ensure that more workers receive overtime pay protections. The new minimum pay goes from $684/week to $844/week. This new rate equals $43,888 per year.
2. January 1 Changes
Further Salary Threshold Adjustment: Another adjustment to the salary threshold will occur on January 1, further increasing the amount employees must earn to maintain their exempt status. The new weekly pay will be $1,128/week which comes out to $58,656 per year.
Annual Review Requirement: Employers will need to review the salaries of exempt employees annually to ensure they meet the updated threshold. This measure is designed to keep salaries in line with inflation and cost of living adjustments. It is anticipated that this threshold will be updated more frequently than it has been previously.
One further note:
The new FLSA rules regarding salary thresholds for exempt employees apply based on the pay period, not the pay date. This means that if a pay period includes the date when the new rules take effect (July 1 or January 1), the new salary thresholds must be applied to the entire pay period.
For example, if the pay period spans from June 25 to July 9, and the new rules take effect on July 1, the new salary thresholds would apply to the entire pay period starting June 25. Employers need to ensure that the salaries for that period meet the updated thresholds to maintain the exempt status of their employees.
This webinar provides an overview of the new FSLA rules: Final Rule Webinar: Restoring and Extending Overtime Protections
Who Qualifies as an Exempt Employee?
To qualify as an exempt employee under the FLSA, an individual must meet specific criteria regarding their job duties and salary. Exempt employees are typically not entitled to overtime pay. Here are the main categories and criteria for exemption: dol.gov/agencies/whd/fact-sheets/17a-overtime
1. Executive Exemption:
- Primary Duty: Managing the enterprise or a recognized department or subdivision.
- Supervision: Directs the work of at least two or more full-time employees or their equivalent.
- Authority: Has the authority to hire or fire other employees, or their recommendations on such decisions are given particular weight.
- Salary Basis: Earns a salary that meets the minimum threshold set by the FLSA.
2. Administrative Exemption:
- Primary Duty: Performing office or non-manual work directly related to the management or general business operations of the employer or the employer's customers.
- Discretion and Independent Judgment: Exercises discretion and independent judgment with respect to matters of significance.
- Salary Basis: Earns a salary that meets the minimum threshold set by the FLSA.
3. Professional Exemption:
- Primary Duty: Performing work that requires advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction.
- Creative Professionals: In some cases, performing work that requires invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.
- Salary Basis: Earns a salary that meets the minimum threshold set by the FLSA.
4. Computer Employee Exemption:
- Primary Duty: Employed as a computer systems analyst, computer programmer, software engineer, or other similarly skilled worker in the computer field.
- Job Requirements: Engages in systems analysis, programming, software engineering, or a combination of these duties.
- Salary Basis: Earns either a salary that meets the minimum threshold set by the FLSA or an hourly rate of at least $27.63 per hour.
5. Outside Sales Exemption:
- Primary Duty: Making sales or obtaining orders or contracts for services or facilities for consideration paid by the client or customer.
- Workplace: Customarily and regularly engaged away from the employer's place of business.
- Salary Basis: No salary threshold requirement.
What This Means for Your Business
As these new FLSA rules take effect, it's essential for small business owners to do the following:
1. Review Salaries: Ensure that the salaries of your exempt employees meet the new thresholds. Adjust salaries if necessary to comply with the new regulations.
2. Update Policies: Update your payroll and HR policies to reflect the changes in exemption criteria and salary thresholds.
3. Stay Informed: Keep abreast of future changes to the FLSA and other labor laws to maintain compliance and protect your business from legal issues.
By understanding and implementing these changes, you can ensure that your business remains compliant with FLSA regulations, avoids potential fines, and fosters a fair and legally sound working environment for your employees. For more information on these changes new changes visit: dol.gov/agencies/whd/overtime/salary-levels
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