New Final Rule on Exempt Versus Non-Exempt Employees
Recently, the Department of Labor announced a new final rule for FLSA overtime exemption requirements. Previous attempts to make changes to these requirements were later struck down in the court system, so this final rule may not be truly final. Regardless, nonprofits need to be prepared to comply with the changes.
The biggest change is an increase in salary requirements for exempt workers — those who are exempt from overtime pay. Previously, the required salary test to maintain exemption was $35,568. With the new rule, that amount will increase to $43,888 on July 1, 2024, and increase again to $58,656 on January 1, 2025.
There are several areas that nonprofits need to consider as they plan to make changes in light of this final rule.
Understand why it matters
With the increased salary thresholds, many nonprofit employees will no longer classify as exempt employees and will be subject to overtime requirements. Non-exempt employees will need to track any time that exceeds 40 hours weekly and be paid at least time and a half for those hours.
Nonprofits must decide how to navigate these changes and the potential impact on their personnel budget. Employees will either need to be increased to the minimum salary to maintain exempt status or be classified as non-exempt and begin receiving overtime pay. Many of these employees have been working over 40 hours weekly as salaried employees, so shifting them to non-exempt with overtime pay could have a significant impact on a nonprofit’s budget.
“Employees who are non-exempt must track their time more closely than exempt employees.”
Employees who are non-exempt must track their time more closely than exempt employees. Because they are often allocating time to projects that are funded by grants, they must account for the hours spent on each project. Many grants disallow overtime pay, and grant funding will be unavailable to cover the extra costs.
Work with a qualified professional
There are additional details involved in determining exempt versus non-exempt employees beyond just the salary level. Working with a qualified human resource professional or attorney can help you determine who is qualified as exempt and how to navigate the updated requirements.
As you evaluate the options, be sure job descriptions and categories are up-to-date and reflect the current responsibilities of each position. Because there are different tests that could qualify an employee for exemption, a thorough review of responsibilities is warranted. Work with a qualified professional to determine if there are any other tests that may qualify employees as exempt.
Be compassionate about how it affects employees
The effect on employees goes further than simply needing to adjust to new time tracking requirements. For some employees, there is a level of prestige that goes along with being a salaried employee rather than hourly. For some employees, being reclassified as non-exempt and needing to account for their time each week may be a significant adjustment both practically and emotionally. Others may be grateful for the opportunity to earn overtime pay.
Employers should stay in tune with the conversations and feelings surrounding these changes. Take the time to help employees understand that this can be beneficial and not a step backward in their career. Understanding that this is a big change for all involved and having compassion for those affected employees will go a long way to making it a successful transition.
Put the right policies and procedures into place
With the first step of the new rule taking effect on July 1, 2024, employers should start planning now. As with previous attempts to change this rule, the new rule may be challenged in court. Thus, now is the time to plan, but it may not be the time to make immediate changes.
If you have employees who will now be recording time and tracking overtime, managers will need training on how to manage the new requirements. They will need to pay attention to weekly hours and have a policy in place if an employee hits 40 hours early in the week — will overtime be approved or may the employee be sent home once they reach 40 hours? Policies and procedures should ensure employees are clear on expectations and managers are clear on what happens if employees do not follow overtime policies.
Tracking hours is an opportunity to shed light on an employee's workload and ensure responsibilities are evenly distributed. If one employee has significant overtime and another barely reaches 40 hours, it may be time to further evaluate workloads. Perhaps one employee is underperforming, or perhaps someone is overloaded and needs tasks reassigned to an underutilized employee.
The next several months are a critical time for nonprofits to make a plan for how they will classify any positions affected by this change. By understanding how it impacts employees, working with a qualified professional, and putting the right policies and procedures in place, nonprofits can make the necessary adjustments prior to July 1st.
