In 2024, the U.S. Department of Labor (DOL) implemented a new overtime rule that was later struck down in November of the same year. This rule initially raised the minimum salary threshold to $43,880 in July 2024 and planned to increase it further to $58,656 in 2025. While the July adjustment took effect, the decision to overturn the rule reverted the salary threshold back to the 2019 level of $35,568. As of now, it appears unlikely that the DOL rule will be reinstated. This development presents a challenge for businesses that reclassified employees as non-exempt/hourly due to the July threshold increase: should these employees remain hourly, or should they return to exempt/salaried status? Businesses should consider the following key factors:

Does the Position Still Qualify for Exempt Status?

The first step in this decision-making process is determining whether the position still meets the requirements for exempt status. If a position was previously salaried, it likely still qualifies, but a thorough review of exemption criteria is recommended.

There are several ways a position may qualify for exempt status under the Fair Labor Standards Act (FLSA), including:

• Executive Exemption
• Administrative Exemption
• Learned and Creative Professional Exemption
• Computer Employee Exemption
• Outside Sales Exemption
• Highly Compensated Employee Exemption

These exemptions primarily apply to white-collar positions, whereas most blue-collar roles do not qualify. If you are unsure whether a position meets the exemption requirements, the DOL provides detailed guidance here: https://www.dol.gov/agencies/whd/fact-sheets/17a-overtime.

Why Are You Considering a Return to Exempt Status?

Reclassifying an employee as salaried means they will be exempt from FLSA provisions such as minimum wage and overtime pay requirements. This means, under most circumstances, employees receive the same pay each week regardless of hours worked. Consider whether this change aligns with your business objectives and employee expectations.

Other Factors to Consider When Deciding on Reclassification

When evaluating whether to return an employee to exempt status, business leaders should assess the following:

• Labor Costs: How have labor costs changed since transitioning the employee to hourly status? Has the employee been working significant overtime, or have their hours remained well below 40 per week, potentially causing the employee’s overall pay to decrease?
• Expenses Incurred Due to Reclassification: Have you invested in training employees on time-tracking or made adjustments to scheduling expectations? Have you invested in a Time Tracking system or other software due to the change? Would reverting to exempt status negate these investments?
• Employee Impact: How has reclassification affected employees financially? If an employee has been earning overtime, a return to exempt status could result in a significant pay cut. Conversely, some employees may have lost income if they consistently work fewer than 40 hours per week. Additionally, how has tracking hours impacted employee morale and workflow?

Making the Right Decision

Reverting an employee to exempt status is a complex decision that involves financial, operational, and employee satisfaction considerations. Consulting with an HR professional can provide valuable insights into the best course of action for your organization. If you need expert guidance, The Employer Group can help navigate these decisions and ensure compliance with FLSA regulations.

 

 

This information does not constitute legal advice.