8 Steps to Take Now and to Prepare for the Next Big Hike

The Department of Labor (DOL)’s new overtime rule is here – and it means big changes for many employers. Moreover, the rule impacts CPAs both as employers (since you may need to increase the salaries of your managers) and as trusted advisors to your clients to alert them regarding this important development. Specifically, the salary threshold for the so-called “white-collar” exemptions just rose to $43,888 on July 1 (and will jump to nearly $59,000 at the start of 2025). What’s more, the threshold for the “highly compensated employee” (HCE) exemption rose from $107,432 to $132,964 on July 1, then will increase to a whopping $151,164 on Jan. 1, 2025. While legal challenges to the rule are ongoing, you can’t count on a court halting the rule before the next effective date. So, now is the time to ensure your practices comply with the most recent requirements and to get ready for Phase II. Here are the top eight steps to consider.

1. Review pay practices. Under the federal Fair Labor Standards Act (FLSA), employees generally must be paid an overtime premium of 1.5 times their regular rate of pay for all hours worked beyond 40 in a workweek — unless they fall under an exemption. One of the criteria for the FLSA’s executive, administrative and professional exemptions (the so-called “white-collar” exemptions) is earning a weekly salary above a certain level. As of July 1, that level is $844 a week ($43,888 annualized). For the next phase, which takes effect on Jan. 1, 2025, the salary threshold will rise to $1,128 (or $58,656 a year). For the HCE exemption, employees must be paid at least the HCE threshold of $132,964 on July 1, and $151,164 on Jan. 1, 2025. For more information on how the new overtime rule impacts HCEs, click here.
2. Work through your decision tree. Do you currently have white-collar exempt employees who earn less than $58,656 a year (or $132,964 for HCE)? You will have to decide whether to raise their salary to meet the new threshold or convert them to non-exempt status. If you decide to convert them, there are many considerations, and you should work with legal counsel. Additionally, you may want to start tracking their actual hours worked now to help you understand the potential impact of converting to non-exempt status, as those individuals will need to be paid overtime.
3. When reclassifying employees to non-exempt, consider the impact on employee morale and prepare a communication plan. Reclassifying employees to non-exempt could have a negative impact on morale. Many employees associate prestige with being classified as an exempt-salaried employee, they like the flexibility that comes with being salaried, and they don’t want to track and record their hours worked.
4. Plan to provide advance notice of changes. You’ll want to provide a written communication to each employee about the specific changes to their compensation and what new responsibilities come with the changes, such as timekeeping and record keeping. 
5. Review your policies on company equipment and personal devices. Do you have different policies for exempt and non-exempt employees when it comes to issuing company equipment and using personal devices? Exempt employees may have more leeway to use company laptops or their own personal devices — such as smartphones — to conduct business while traveling or outside of their regular office hours.
6. Develop a training plan for managers and newly non-exempt employees. It is highly recommended that you provide detailed training to newly reclassified employees and their managers prior to the changes taking effect. The specifics may vary from business to business, but you’ll want to cover scheduled hours, overtime approval policies, timekeeping procedures, rules about meal and rest breaks and more.
7. Ensure exempt employees meet the duties test. Besides the salary test, exempt employees also need to satisfy certain duties requirements. Neither their job title nor job description alone determines whether an employee qualifies for a white-collar (or any other) exemption. This is a good opportunity to ensure they meet these standards as well.
8. Track legal challenges. A district court temporarily halted the rule only as it applies to the state of Texas as an employer while it hears an underlying legal challenge. Other lawsuits are likely to be filed throughout the country seeking a broader injunction, and you should also monitor appeals in 5th Circuit Court of Appeals. Meanwhile, New Jersey employers (and private employers across the country) will need to adjust their compensation practices to comply until and unless a court says otherwise.