U.S. Department of Labor increases minimum required salary for overtime-exempt
Key Takeaways from new Department of Labor Overtime Rules :
- Being salaried doesn’t disqualify an employee from receiving overtime pay.
- Specific criteria, including but not limited to salary, must be met to qualify for an exemption.
- Tracking time and paying overtime are required if the employee does not pass the three exemption tests.
A common misconception among small business owners is that salaried employees are not eligible for overtime pay. The reality is that any employee can be paid a salary, but how they are paid is completely separate from how they are classified for overtime purposes.
“Salary alone doesn’t get business owners off the hook from tracking hours and paying overtime,” says Paul Edwards, CEO of CEDR HR Solutions. “There are rules around exempt and non-exempt employees, and with the threshold for overtime protections recently expanding, it’s more important than ever to understand the guidelines.”
For those not familiar, the Department of Labor (DOL) announced on July 1, 2024 a new DOL overtime rule increased the minimum required salary for overtime-exempt employees from $35,568 to $43,888. On Jan. 1, 2025, the DOL threshold will rise to $58,656.
That means any salaried employee making under $43,888 is non-exempt, and therefore, employers must track hours and pay overtime.
“Where it gets sticky is, employees making more than the $43,888 minimum are not automatically exempt from the DOL overtime rule,” says Paul. “There are very specific tests that must be met for someone to be exempt, and the requirements go beyond salary.”
Who Is Exempt or Non-Exempt According to the Department of labor Overtime Rules?
Under the Fair Labor Standards Act (FLSA) overtime rules, employers are required by default to track an employee’s time, pay at least minimum wage for all hours worked, and pay overtime if they work more than 40 hours a week at 1.5 times regular pay. (Certain states have additional overtime rules, which can be even more stringent.)
However, employers can avoid those requirements if an employee’s position fits an exception to the FLSA requirements, making them exempt from the overtime rules.
There are three tests that must be met for an employee to qualify as “exempt”:
- They must be paid a fixed salary each pay period.
- They must be paid a minimum salary level of $844 per week or $43,888/year.
- They must meet the job duty requirements for being classified as an Administrative, Executive, or Professional (other exceptions exist, but these are the most common exemptions affecting dental practice owners).
While the first two tests are straightforward, Paul says the job duty test is where many practices find themselves out of compliance.
Administrative Exemption
This is not a catchall for a practice’s admin team. This exemption covers employees whose work directly relates to administering high-level business processes, such as strategic company direction, finances, marketing strategies, budgeting, compliance and quality control.
“For this exemption, you need to be able to show actual decision-making discretion, where the employee is using independent judgment,” says Paul. “A salaried front office employee would typically not qualify.”
Positions that often do qualify include CEO, Financial Director, HR Director, and those on the company’s executive team.
Executive Exemption
An employee meeting the Executive exemption test is most commonly a high-level manager. However, be careful not to assume that anyone in a supervisory role meets this test. It’s critical that management is the employee’s primary duty.
“In dental practices, this exemption would most often apply to the office manager,” says Paul. “Just be sure they’re spending most of their time completing managerial tasks.”
According to the DOL, a manager supervising two employees rarely spends 50% or more of their time primarily engaged in managerial duties. Paul recommends using this exemption if the employee manages at least three full-time employees and engages in high-level management during the majority of their workday.
Professional Exemption
This classification is often referred to as the “Learned Professional” exemption because it focuses on a high level of education in fields such as medicine, law, science, accounting, engineering, and architecture.
“Four years of college education is usually not enough to meet this educational standard,” says Paul. “The good news for practice owners is that salaried Associate Dentists meet this exemption.”
As for hygienists, Paul does not recommend using the Professional exemption. “The DOL has repeatedly found that a hygienist’s work is more routine in nature, lacking the discretion used by a high-level provider such as a dentist,” he says.
Paul recommends reviewing the DOL’s guidance on all exemption requirements before making a decision regarding any of these exemptions.
What If You’re Out of Compliance?
First, don’t panic, but be proactive. Work with an HR consultant like CEDR Solutions or your CPA to decide whether giving the employee a raise above the minimum salary threshold makes the most sense (assuming they also pass one of the exemption criteria) versus tracking time and paying overtime.
Once you’ve decided how to classify their salary, Paul recommends having a private conversation with each employee affected.
“Work behind the scenes to put a plan in place, then come prepared with a clear explanation of why their salary is changing,” says Paul. “People are much more accepting of changes when it’s done in a very intentional, thoughtful, human way.”
For more on the Department of Labor overtime rules, check out this informative guide to wage compliance. To get deeper insights into how the DOL salary threshold might affect your practice or for answers to any other financial planning question, talk to a CWA advisor today.
