More People Eligible for Overtime – How to Prep
By VICKY BROWN
The rate for overtime eligibility is changing, and it just may have a huge impact on your team and your budget.
In last week’s episode we covered what is and what isn’t an overtime eligible position – and the fact that the Dept of Labor has upgraded the minimum salary you can pay an exempt employee.
Well, I this week’s episode we’re going to talk about the steps you need to take to navigate these changes.
OK, to recap – the Dept of Labor is changing the minimum wage for exempt level employees (meaning those not eligible for overtime). It used to be $684 per week, but effective July 1, 2024 it’s moving to $844 per week – and that applies to the Executive, Administrative and Professional categories.
And while Outside Sales is remaining the same; the Highly Compensated category’s minimum amount is changing as well.
It used to be that people making $107,432 per year were considered highly compensated and exempt. But now you have to make at least $132,964 a year to sit in the Highly Compensated category. So if you make less than that amount, the only way you would be considered exempt from overtime is if you qualify under one of the other categories. Now if this all sounds Greek to you – take a look at last week’s episode where I break down each of the categories.
OK – back to the navigation. First, take a look at your state and other local laws. Many states have their own categories, and wage levels – and in fact mine, California, has wage levels higher than the DOL’s. So we would have to comply with California’s numbers.
That’s why, before you go making any salary or other adjustments, it’s important to know what’s up with your local laws first. Then you can tackle the federal requirements.
Next you’ll need to do an analysis of where you are as a company.. Get a report of each person, and include date of hire, job title, salary, current overtime category (meaning exempt or non-exempt) etc. The more information the better – because you’re probably going to have to make some challenging decisions around compensation – and knowing how long someone has been with the company, and what their title is will be helpful. And, you also need to know what’s going on across the organization.
For instance, if you have 3 customer service reps, one at $40K per year, one at $55K and one at $85K – well you can’t just make the person at $40K non exempt and leave the other two as exempt if they are all doing the same job. It won’t pass the sniff test with an auditor. So again, you need all the information, so you know if there might be any unintended consequences to your decision.
In fact, this is an excellent time to look at all the classification across your organization. Who is exempt, do they meet the duties test, and if so – which one? Write that down and put it in your compensation folder, because one day you’ll need to know why you did what you did.
Now, once you’ve done all that, and you’ve identified where the gaps are – it’s time to fix things. And before you decide that you’re just going to increase everyone so they’re above the threshold – here are some questions to ask yourself:
Does the job pass the duties test – because if not, game over. They have to pass both the duties and wage test to be considered exempt.
Are you paying them on a salary basis – so if your argument is that they are exempt, then you can’t turn around and start docking their pay for 1 and 2 hours absences (that’s just an example – the rules around docking the pay for exempt employees is significantly more complex).
“… before you go making any salary or other adjustments, it’s important to know what’s up with your local laws first. Then you can tackle the federal requirements.”
What will making the job exempt mean to the rest of the company – as I said earlier, do you have other people in the same job – are they in the same category?
What impact might all this have on the budget. And what about benefits that may be tied to the salary level. When you increase someone’s salary, that might mean their life insurance amount is increased (it’s usually tied to the employee’s wages); and if you have a matching retirement plan, an increase will mean their contribution – and your matching amount – will increase.
Now on the other side – what if you decide to just make them all non-exempt (or overtime eligible). Well, that brings along a different set of questions.
You should look at the time they actually work so you have some measure of clarity of the amount of overtime you might incur. Also consider performance increases and bonuses, if they apply. Most bonuses will trigger a recalculation of overtime for non-exempt people
From an administrative standpoint, they’ll have to start clocking in and out – so you should have a timekeeping system ready to go. And you’ll probably (depending on your state) have to start tracking meal periods as well.
Do you have different benefits for exempt and non exempt employees. The one I see most often is vacation – it’s accrued at one rate of overtime eligible employees and another for exempt level employees.
And then there’s the elephant in the room. How will your team take it if their job is exempt one day , and they have to start clocking in and out the next? So many people see this as some sort of demotion. But in fact, it gives the employee the opportunity to earn more (since they are going to be compensated for each hour they work, and often at a premium rate).
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And by the way, that reminds me. When you move someone from exempt to non-exempt, that’s no time to decide you’ll get a little money back in the budget by lowballing their hourly rate. Believe me – they will most certainly notice. And it will cause a lot more trouble than you want. When you do the conversion, consider ALL the compensation they had before.
If they had special perks, try to factor that in. And if you factor in overtime that they may work, then prohibit all overtime – well, you’ve just reduced their rate from what it was. So – um, don’t do that.
And hey – registered nurses are non-exempt. So it doesn’t have anything to do with being a ‘less than’ employee – because we all know registered nurses aren’t less than anybody. And, thank goodness for them!
But you’ll still have to carefully craft your communication plan. Be prepared to answer each individual’s questions. What does it mean for their pay; how will they clock in and out; what are the rules; what happens to their bonus. In fact, I think it’s actually best if you do a little memo or FAQ for each person, with a cover outlining their specific numbers, so they can have something in writing they can refer back to if they get confused after the discussion.
Listen, I know compensation is a touchy subject, but don’t go it alone. Enlist the help of your managers and department heads – particularly on the duties evaluation piece. They can help give spot on information around what that person is actually doing every day. And they may have insight on who will take it well – and who won’t.
Because, you have to keep in mind that this isn’t the last time this is going to happen. The ranges are scheduled to be updated every 3 years, beginning in 2027. So, remember that as you go through future workforce planning (a fancy HR way of saying, who you’ll need in the future, and what you’ll need done) and as you’re looking at your budget.
I’ll put a link to a quick at a glance guide from the DOL in the description.