Key Compliance Steps for New Salary Requirements for FLSA Exemptions

Key Compliance Steps for New Salary Requirements for FLSA Exemptions

According to an article by Navex, The Department of Labor (DOL) issued a final rule revising the salary requirements for minimum wage and overtime pay exemptions under the Fair Labor Standards Act (FLSA). This change primarily impacts the “bona fide executive, administrative, or professional” (EAP) employee exemptions. So how can small and medium-sized businesses comply with the new salary requirements for FLSA exemptions?

The EAP exemption is determined using three tests: job duties, salary basis, and salary level. The job duties test remains unchanged, requiring specific executive, administrative, or professional roles. The salary basis test mandates that employees receive a predetermined amount each pay period. The revised salary level now requires a minimum weekly salary of $844 (increasing to $1,128 by January 1, 2025).

Additionally, the Highly Compensated Employee (HCE) test has been updated. Effective July 1, 2023, the HCE threshold is $107,432 annually (increasing to $151,164 by January 1, 2025). Employers must meet these thresholds to classify employees as exempt under the FLSA.

The article notes there has been criticism from small business advocates, like the U.S. Small Business Administration and the National Federation of Independent Business. Small- and medium-sized businesses (SMBs) are concerned about the economic impact and the burden of compliance on small businesses. They argue that the increased labor costs and the time required to understand and implement the changes are significant challenges, especially in a post-pandemic environment.

To ensure compliance, the article suggests that SMBs should re-evaluate job roles, salaries, and pay policies. Options include increasing salaries to meet the new requirements for FLSA exemptions, either by paying overtime premiums, reducing overtime hours, or adjusting base salaries. 

Employers must also inform managers and payroll departments about the changes and consider using compliance guides and purpose-built solutions to manage these updates effectively. The DOL’s “Small Entity Compliance Guide” offers detailed information on ensuring compliance with the new rule.