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New Overtime Exemption Rule: How to Communicate Changes to Employees

Spark Team

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The minimum salary required to be classified as exempt from overtime under federal law will increase on July 1, 2024, and again on January 1, 2025.

If your exempt employees' salaries fall below the new threshold, you will generally either have to:

• Raise their salaries to the new requirement; or
• Reclassify the affected employees as non-exempt and pay them overtime whenever they work more than 40 hours in a workweek.

Once you have evaluated your options, be sure to develop a plan for communicating the overtime exemption changes to employees. Here are some guidelines for doing so.

Consider state and local notice requirements

Many states and local jurisdictions require employers to provide advance notice about pay changes. Several of these laws specify the amount of notice required. For example, Missouri generally requires at least 30 days' notice before a reduction in pay. Some states require advance notice but don't specify how much time is required. Check your state and local law to ensure compliance. In the absence of a specific notice requirement, consider providing notice at least seven days before the change becomes effective.

Some states require employers to provide a notice at the time of hire to employees that contains information about their employer, pay, and, in some cases, whether they are classified as exempt or non-exempt from overtime. This is often called a "wage theft" notice. Typically, an updated wage theft notice must be provided when any of its information changes. Check your state and local law to ensure compliance.

Read: DOL Releases Final Overtime Exceptions Rule

Develop your message carefully

Your message will not only help employees understand the overtime exemption changes, but it can also help to shape their perception of them. When drafting your message, be sure to address the following:

• Explain the change and its effective date.
• The impact on the employee.
• That the change is being made to comply with a new government rule.
• Who employees can go to with questions.
• Additional support that will be provided to employees (such as training on the company's timekeeping system for employees reclassified as non-exempt).

For additional help, see our sample employee communication below.

Pay special attention to employee reclassifications

Many employees attach a certain level of prestige and flexibility with being classified as exempt. If you reclassify employees as non-exempt, they may see it as a demotion of sorts. Employers should address this perception by explaining, in detail, some of the benefits of being classified as non-exempt, such as receiving overtime pay whenever the employee works more than 40 hours in a workweek (state law might guarantee overtime in additional circumstances).

As with any change in classification, employers should also communicate any procedures or policies for timekeeping, absences and deductions in pay that might now be applicable to the reclassified employee. For example, you may want to:

• Provide training on your timekeeping policies and on using your timekeeping system. Under the FLSA, hours worked includes not only productive time (time actually spent working), but also certain nonproductive time, such as rest breaks, travel time, and training time. All of this time must be included when determining whether you have met your minimum wage and overtime obligations.
• Direct them to record all of the time they work and expressly prohibit off-the-clock work (however, if they do perform off-the-clock work, you must pay them for hours worked).
• Inform them that they should report any missed timekeeping punches immediately.
• Require them to punch out for unpaid meal periods.
• At the end of each payroll period, require them to confirm their hours of work.
• Consider controls to prevent off-the-clock work (e.g., limiting remote access to work email).

Be ready for questions

Employees may have questions about timekeeping, benefits and other issues related to the new classification. When notifying the employee of this change, provide the employee with the name and contact information of the person they can contact if they have questions.

You may also receive questions about other pay and equity issues. For many employers, raising employees' salaries to the new minimum required salary may create wage compression (a situation that occurs when employees have similar salaries despite different qualifications or experience). In such a scenario, employees whose salary is already above the new threshold may wonder why their pay isn't also increasing.

Therefore, you should review the compensation of employees paid below the new threshold and should also consider, from an employee relations and financial perspective, raising the salary of other employees (particularly those paid slightly above the new required minimum) and communicate any such changes accordingly.

Note: In an attempt to prevent discord, some employers might contemplate a policy prohibiting employees from discussing their pay with co-workers. However, under Section 7 of the National Labor Relations Act (NLRA), employees have, among other things, the right to act together to improve wages and working conditions and to discuss wages, benefits, and other terms and conditions of employment, with or without a union. The National Labor Relations Board (NLRB), which enforces the NLRA, and many courts have found that pay secrecy or pay confidentiality rules violate Section 7 rights. Additionally, many states and local jurisdictions prohibit pay secrecy policies.

Train supervisors

Train supervisors so they provide information consistent with your company's policies and messaging. Supervisors play an important role in preventing off-the-clock work. Ensure supervisors set proper expectations with their staff and that they are prepared to monitor this time. Consider controls, such as preventing access to work email outside of business hours or requiring permission before performing work during off hours.

Leverage our sample communication

If you will raise an employee's salary to comply with the changes, here is a sample employee communication to consider.

Note: This communication is provided as a sample and may not be suitable for every situation and should not be considered legal advice or legal opinion. You should consult experienced counsel for legal advice. This advice would include but is not limited to whether it is appropriate for you to leverage this sample communication and the inclusion of any other legally required pay change notices.

To: [Employee Name]

From: [Company Contact]

RE: Changes to FLSA Exemption Tests

As we previously communicated, on April 23, 2024, the Department of Labor (DOL) issued final regulations impacting the Fair Labor Standards Act's (FLSA) exemption tests.

After reviewing this information, we have determined that your salary will be increased to [amount] per pay period effective [date].

If you have any questions, please speak with your manager, or feel free to contact me at [Telephone Number] or [Email Address].

Sincerely,

[Contact Name]

[Job Title]

Attachment [attach any additional notices needed to satisfy state/local requirements — consult with counsel as needed]

Next steps

Make sure you have a plan for communicating any changes to employees, considering the guidelines discussed above. Also, watch for potential updates. The final rule will likely face legal challenges.

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_{This article was originally published as an "ADP HR Tip of the Week," a communication created for ADP's small business clients.}