In 1938, the Fair Labor Standards Act (FLSA), established basic rules and principles to ensure a hard day’s work received a fair days pay. Amongst these rules were minimum wage, rules regarding child labor, rules about what was considered hours worked, and overtime pay. The overtime pay established was 1.5 the regular rate of pay. This is still the overtime rate used today.
The rules regarding overtime pay were designed to protect lower income workers from being exploited and overworked. The FLSAs rules for minimum wage and overtime pay included some exceptions for executive, administrative, and professional employees (referred to as EAP exceptions). The EAP exemptions apply when:
- An employee is paid salary
- The employee makes more than a minimum threshold amount and
- The employees’ main role is in executive, administrative, or professional responsibilities
Fun fact: the original minimum threshold determined by the FLSA in 1938 was 30 dollars per week. In other words, if a salaried employee made less than 30 dollars per week, they were entitled to overtime pay if they worked more than 40 hours per week.
The minimum threshold for overtime pay changed many times between 1938 and 1975, mostly to adjust for inflation. As of this year, there were two new minimum threshold changes scheduled:
As of July 1, 2024 the new minimum threshold is $844/week (or $43,888 per year)
On January 1, 2025 the minimum will increase again to $1,112/week (or $58, 656 per year).
The DOL also established a rule stating that as in July 2027, the minimum threshold to exempt a salaried worker from overtime pay will be revisited every three years to adjust for inflation and worker salaries. The minimum amount will be determined then, using relevant data about wages,
As an Employer, what are my options for responding to this?
The department of labor provides several options for responding to the increase:
- Employers can increase the salaries of their employees to meet the exceed the new minimum threshold.
- Employers can pay an overtime premium of one and a half times the employee’s regular rate of pay for any overtime hours worked;
- reduce or eliminate overtime hours;
- reduce the amount of pay allocated to the employee’s base salary (provided that the employee still earns at least the applicable hourly minimum wage) to offset new overtime pay; or
- use some combination of these responses.
This is designed to allow employers to choose the options that best work for them. For example, if a salaried employee in question currently makes $56,000 per year and is expected to put in overtime, the simplest solution may be to increase their pay to a minimum $58,686 before January 2025.
Alternatively, if a salaried employee makes beneath the minimum requirement and rarely works overtime, an employer may choose to keep the employee’s salary the same and continue as they have been.
What Are the Time Recording Requirements for Salaried Employees
The FLSA’s requirements for overtime mostly apply to employees who don’t fall under the EAP exceptions. Like hourly employees, non-EAP salaried employees are required to keep records of their hours worked. You can read more about record keeping requirements under the Department of Labor’s Record Keeping Factsheet.
In conclusion, the changes to the minimum salary threshold for Executive, Administrative, and Professional (EAP) employees under the Fair Labor Standards Act (FLSA) reflect the evolving nature of the workforce and the need for fair compensation. These updates help ensure that employees are properly classified and fairly compensated for their work, especially when it comes to determining who qualifies for overtime pay. As businesses adjust to these changes, staying informed about the FLSA regulations is essential to maintaining compliance and supporting a fair work environment. Whether you’re an employer or an employee, understanding these shifts is key to navigating the complexities of modern labor standards. Stay tuned with the Key2 Accounting blog by signing up for our newsletter!
