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New Overtime Pay Threshold May Force Employers to Increase Wages

The Department of Labor (DOL) has proposed increasing the salary threshold for exempt employees to $1,057 per week from the current threshold of $684 per week, which was implemented in 2020.

The proposed increase would mean that more employees will fall under the salary threshold and qualify as nonexempt, therefore becoming eligible for overtime pay.

What is an Exempt Employee?

Exempt employees are typically paid a salary instead of an hourly wage. Exempt workers aren’t eligible for overtime pay under the Fair Labor Standards Act (FLSA). In addition, the DOL looks at an employee’s duties to determine if they qualify as exempt under the FLSA.

As we’ve covered before, business owners don’t get to decide for themselves which jobs are exempt and nonexempt. There are established standards for correctly classifying employees according to wages and job duties. Meeting the salary threshold alone doesn’t automatically exempt an employee from overtime pay; his or her job duties also must primarily involve executive, administrative or professional duties as defined by the DOL.

How Does the New Overtime Threshold Affect Nonexempt Employees?

The new overtime pay rule could affect businesses that have exempt employees earning salaries near the current threshold.

Restaurants, for example, frequently employ hourly (nonexempt) workers and salaried (exempt) managers. While managers and other exempt employees with administrative duties may work long and sometimes excessive hours, they aren’t compensated with overtime pay for those extra hours. With the new rule, managers earning near the current threshold would either need a higher salary to meet the new threshold, or they would need to start receiving overtime compensation.

The bottom line: employers must be prepared to evaluate which employees are now exempt or nonexempt under the new rule and make any necessary adjustments to their salaries unless they are willing to pay overtime.

MarathonHR would be happy to speak with you about your company’s compensation practices and how you can best prepare for this change if it takes effect.

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