Do you have exempt employees making less than $55,000 a year? You’re not alone. Read below to see how the proposed rule change might impact you and suggested steps:
The Fair Labor Standards Act has a proposed rule change that may impact nonprofits. MNA hosted a webinar on March 27th with Westaff and Montana State Department of Labor Bureau Chief to explain the rule and options for nonprofits.
View the recording below and view slides here.
UPDATE 4/24/24
The U.S. Department of Labor (DOL) has released its Overtime Final Rule designed to update and revise overtime protections for millions of workers employed by nonprofits, for-profits, and governments. The final rule, set to start going into effect on July 1, 2024, increases the minimum salary level that white-collar employees must be paid to exempt them from overtime pay of time and half of wages for hours worked in excess of 40 in any week.
The Overtime Final Rule makes changes in three areas:
Standard Salary Threshold
Old Rule Adjusted: On July 1, the standard salary threshold goes up to $844 per week/$43,888 per year (from the current level of $684 per week/$35,568 per year). This is essentially an inflation adjustment of the level set by the Trump Administration in 2019.
New Rule Implemented: On January 1, 2025, the salary level then goes up again to $1,128 per week or $58,656 per year.
Beginning July 1, 2027, the salary threshold will be automatically adjusted for inflation every three years.
Highly Compensated Employee Total Annual Compensation Threshold
The Labor Department is also adjusting the special threshold for highly compensated employees, a threshold that reduces the level of needed scrutiny about the duties the individual employees must perform to be exempt.
Old Rule Adjusted: On July 1, the threshold for highly compensated employees is adjusted for inflation from the current level of $107,432 per year to $132,964 per year. This new rate also requires that the individual must be paid on a salary or fee basis of at least the new standard salary threshold ($844 per week).
New Rule Implemented: Starting January 1, 2025, the threshold for highly compensated employees goes up to $151,164 per year and requires that the individuals are also paid a minimum of $1,128 per week on a salary of fee basis. The new, higher threshold in this category was originally proposed back in September at about $144,000.
As with the standard salary threshold, the highly compensated employee salary threshold will be automatically adjusted for inflation every three years, beginning on July 1, 2027.
Automatic Adjustment
Finally, the new Overtime Rule includes a mechanism for the Department to adjust both the Standard Salary Threshold and Highly Compensated Employee Total Annual Compensation Threshold for inflation every three years. The next automatic adjustment will take effect on July 1, 2027.
What you should do to prepare
We advise nonprofits begin preparing themselves now to be ready when the rule change does go into effect, recognizing that many exempt employees do not meet this salary threshold in the nonprofit sector.
Step One:
- Review salaried, exempt employees and make sure they meet the duties test to be exempt.
- Review the hours worked by current exempt employees to see if they are working over 40 hours each week.
Step Two:
Options for you to consider for exempt employees who make less than $1,059/week or $55,068/year:
- Raise salary and keep employee exempt. Depending on current pay, this could cost as much as $19,500/year per exempt employee
- Convert status to nonexempt, pay hourly, and track overtime. Depending on current pay, this could cost the organization up to or over $6,669/year, based on 5 hours of overtime each week.
- Keep employee at current salary and pay overtime. Review US DOL Fact Sheet #82 to see how to calculate overtime when paying someone on a fluctuating workweek basis.
Questions? Reach out to MNA for more information and updates or talk through your specific scenario directly with the Department of Labor:
Department of Labor | Wage Standards Division
(406) 444-6543
www.dli.mt.gov
