Navigating New Overtime Laws: Understanding Exempt vs. Non-Exempt Employees

As a business owner, it's crucial to stay informed about changes in labor and employment laws. Recent updates to overtime regulations may significantly impact how you classify and compensate your employees. On April 23, 2024, the U.S. Department of Labor (DOL) announced a final rule, “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees”, which took effect July 1, 2024. This rule modified regulations issued under Section 13(a)(1) of the Fair Labor Standards Act regarding the exemption from minimum wage and overtime pay for executive, administrative, and professional employees.   To navigate these updated regulations, it is important to first understand the difference between exempt and non-exempt employees. Exempt Employees. In general, employees who work over 40 hours a week are to be paid overtime pay in the amount of 1.5 times the employee’s normal pay. Some employees are exempt from the overtime pay provisions, and sometimes both the minimum wage AND overtime pay provisions of the Fair Labor Standards Act (FLSA). Employees are exempt from the overtime rules if they meet all three of the below tests:

• Salary Basis Test: The employee must be paid a fixed salary that is not subject to reduction based on the quality or quantity of work performed.

• Salary Level Test: The employee must be paid at least a specified weekly salary level.  As of July 1, 2024, that is $844 per week (equivalent to $43,888 per year), which is up from $35,568 per year, and on January 1, 2025, it is set to raise to $1,128 per week ($58,656 per year) January 1, 2025, and will be subject to be raised every 3 years after that.

• Duties Test: There are different exemptions that may apply here. Most commonly, businesses have exempt employees who perform executive, administrative, or professional tasks as defined by the FLSA. There are other exemptions, such as for drivers, loaders, mechanics employed by a motor carrier, in certain situations; farmworkers, salesmen and mechanics for automobile dealerships, and seasonal and recreational establishments. There are specific regulations for each of these positions, and others, that should be reviewed if applicable to your business.

There is also an alternative test for certain highly compensated employees who are paid a salary, earn above a higher total annual compensation level, and satisfy a minimal duties test. Effective July 1, 2024, that threshold for highly compensated employees rose to $132,964 per year, including at least $844 per week paid on a salary basis  

Non-Exempt Employees

: These employees are entitled to overtime pay at a rate of 1.5 times their regular rate for all hours worked over 40 in a workweek. Most hourly workers fall into this category, as well as salaried employees who do not meet the criteria for exempt status.  

Why This Matters to Your Business

Misclassifying employees can lead to severe consequences, including:

• Financial Penalties: Businesses may be required to pay back wages, overtime, and penalties for non-compliance.

• Legal Action: Employees who are improperly classified may file lawsuits, leading to costly legal battles.

• Reputational Damage: Non-compliance can harm your business's reputation, making it harder to attract and retain top talent.

Steps to Ensure Compliance

1. Review Employee Classifications: Conduct a thorough review of your workforce to ensure employees are correctly classified as exempt or non-exempt. Pay close attention to the updated salary threshold and duties test.

2. Adjust Salaries if Necessary: For employees who no longer meet the exempt criteria, consider adjusting their salaries or reclassifying them as non-exempt to ensure compliance with overtime rules.

3. Update Job Descriptions: Ensure job descriptions accurately reflect the duties performed by each employee. This helps in making informed decisions about classifications and compliance.

4. Implement Time-Tracking Systems: For non-exempt employees, implement robust time-tracking systems to accurately record hours worked and calculate overtime pay.

How EQUES® Law Group Can Help

At EQUES® Law Group, our experienced employment law attorneys are here to guide you through these regulatory changes. We offer comprehensive legal services to help your business comply with the new overtime laws and other employment regulations. Reach out to us today to schedule a consultation and safeguard your business against the risks of non-compliance.   Moriah Hinton Business and Labor/Employment Attorney EQUES® Law Group