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Employers with exempt employees making less than the new minimum salary requirements for exempt workers will need to decide whether to increase pay or reclassify employees as nonexempt.

As of July 1, 2024, employees who earn less than $43,888 annually ($844 a week) will have to be paid overtime, even if they’re classified as a manager or professional. Nondiscretionary bonuses and incentive payments (including commissions) paid on an annual or more frequent basis may be used to satisfy up to 10 percent of the standard salary level.

To be exempt from overtime under the Fair Labor Standards Act, employees must be paid a salary of at least the threshold amount and perform certain duties.  If they are paid less or do not meet the tests, they must be paid 1.5 times their regular hourly rate for hours worked in excess of 40 in a workweek.

Employers should initially consider the economic impact of classification decisions, including whether the impacted employees often work overtime.  If so, it may be a better option to increase the employee’s salary above the new salary minimum.

However, the analysis should not be limited to the pure economics.  If employers elect to re-classify some employees, the employer needs to consider how to communicate and implement the change.  Some employees may see a reclassification from exempt to non-exempt as a demotion.  Non-exempt employees must document their time in order to be paid overtime, a requirement that some employees may resent.    If employers elect to increase compensation, employers need to be aware of how pay compression will affect higher-level workers.

Please do not hesitate to contact our employment attorneys, Will Cherry or Jennifer Weaver, at (919)-787-8880 if you have any questions. Click on the underlined names above for their contact information.

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