Understanding Labor Laws for Salaried Employees

Navigating the complex patchwork of federal and state labor laws can be challenging. While many employers are familiar with basic employment rights, understanding the specific rules that affect salaried employees is crucial for ensuring compliance.

In this article, we’ll explore the key law that affects salaried employees—the Fair Labor Standards Act (FLSA)—focusing on exempt vs. nonexempt status and how that status affects an employee’s entitlement to overtime pay.

What Is the Difference Between Nonexempt and Exempt Employees?

One of the fundamental distinctions in labor law is the difference between nonexempt and exempt employees. This classification determines eligibility for overtime pay and other protections under the FLSA.

Nonexempt employees can be paid on an hourly or salaried basis. Nonexempt employees must be paid at least the federal minimum wage, which is $7.25 per hour as of 2024. However, many states and localities have higher minimum wage requirements.

Nonexempt employees are also entitled to overtime pay for any hours worked over 40 in a workweek. Overtime must be paid at a rate of one and a half times the employee’s regular hourly rate.

Exempt employees must be paid on a salary basis, meaning they receive a predetermined amount of compensation each pay period that is not subject to reduction based on the quality or quantity of work performed. Exempt employees are not entitled to overtime pay.

How Do Salaried Employees Qualify As Exempt?

To qualify as exempt, an employee must meet three requirements: they must be paid on a salary basis, they must meet salary thresholds, and they must fit into one of five job categories.

Starting July 1, 2024, new regulations from the U.S. Department of Labor (DOL) will implement significant changes to the salary thresholds for exempt employers under the FLSA. The minimum salary threshold for exempt employees will increase to $844 per week, or $43,888 annually. Effective January 1, 2025, this threshold will jump to $1,128 per week, or $58,656 annually. This represents an almost 65% increase in the minimum exempt salary threshold. The DOL will update the salary thresholds every three years starting January 1, 2027, based on current wage data.

In addition to meeting the salary basis and threshold, employees must perform specific job duties to be classified as exempt. The primary duties of exempt employees must fall into one of the following categories:

• Executive: Involves managing an enterprise or a department, directing the work of at least two full-time employees, and having the authority to hire or fire other employees
• Administrative: Involves performing office or nonmanual work related to management or general business operations and exercising discretion and independent judgment on significant matters
• Professional: Requires advanced knowledge in a field of science or learning typically acquired through extensive education (e.g., doctors, lawyers, and accountants)
• Computer-related: Involves systems analysis, programming, software engineering, or other similar work requiring highly specialized knowledge
• Outside sales: Primarily engaged in making sales or obtaining orders or contracts for services or for the use of facilities and customarily working away from the employer’s place of business

What Are Best Practices for Handling Salaried Employees?

Employers can take several steps to ensure compliance with labor laws for salaried employees:

• Regularly review classifications: Periodically review job classifications to ensure employees are correctly classified as exempt or nonexempt based on their job duties and salary.
• Maintain accurate records: Keep detailed records of hours worked, even for salaried employees, to ensure compliance with overtime and wage laws.
• Provide training: Educate managers and HR personnel on labor laws and best practices to prevent misclassification and ensure fair treatment of employees.
• Stay updated: As with the new DOL salary thresholds, labor laws can change frequently. Staying informed about updates at both federal and state levels is crucial for ongoing compliance.

By following best practices and staying informed, employers can create a supportive environment that respects the rights and contributions of their workforce. Sign up today to receive our periodic email updates to stay on top of the latest changes to labor laws that affect your business.