New Salary threshold For Exempt Status

Rick Alaniz explains the effects of a proposed increase in the annual salary threshold for employees to be exempt from overtime pay.
By Rick Alaniz, Alaniz Law & Associates

The Department of Labor (DOL) has proposed an increase in the annual salary level threshold for employees to be exempt from overtime pay from the current $35,568 to $55,068. That would mean a new weekly amount of at least $1,059. It also calls for automatic increases every three years. The proposed rule is subject to further review, but unless delayed by legal challenges, will likely become effective in the early part of 2024.

In addition to the required minimum salary, an employee must also perform certain specified duties in order to be exempt. The most common exemptions are “executive”, “administrative” and “professional.” The executive exemption generally applies to managers and supervisors. The administration exemption applies to persons performing office or non-manual work which requires the exercise of discretion and independent judgment regarding matters directly related to management or general business operations. It would include such positions as office manager, executive assistant, receivables and/or payables manager, human resources personnel, purchasing agent and similar responsible positions. The professional exemption would apply to degreed engineers and similar highly technical degreed positions.

In order to prepare, employers should review all salaried positions to ensure that they are performing exempt functions as their primary duty and are properly classified as exempt. In addition, employers should review the number of hours routinely required to complete their weekly duties. Some employers, especially small employers who might find it difficult to comply with the salary increase, may consider converting some supervisors to hourly. However, a straight conversion of their salary to an hourly rate could prove more costly since they will be entitled to overtime for all hours over 40. Conversion to hourly could also create morale issues since the change would no doubt be viewed as a demotion by the affected employees. The consolidation of duties could also be an option, but it would also involve the elimination of positions.

Since we are months away from the new salary threshold becoming a reality, employers have more than sufficient time to fully consider all the potential options and impact on their operations.

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