New Rule Increases Salary Requirements for Exempt Employees

Posted By Madilyn Moeller, Friday, April 26, 2024

Handing over money

By Patrick O’Brien, JD, General Counsel, American Med Spa Association (AmSpa)

The U.S. Department of Labor has released a final rule that increases the minimum compensation level needed to consider an employee “exempt” from overtime rules. This new rule takes effect on July 1, 2024. Before we get into the details, you may be wondering what this rule means to medical spa professionals. When the rule takes effect, some salaried employees may be eligible to receive overtime pay unless they met the new exemption requirements. You will want to review your or your employees’ pay packages and see where they fall under the new rule.

Watch AmSpa founder Alex Thiersch, JD speak with Paul Edwards, CEO of CEDR HR Solutions about these changes and more.

Under the Fair Labor Standards Act (FLSA), employees have certain protections guaranteeing both minimum wages and payment for overtime work. However, the FLSA has an exemption to these requirements for certain salaried employees. In order to qualify for the exemption, the salaried employee must be paid above a minimum threshold, and they must primarily perform certain duties as part of their job. The definitions for these duties are complex but fall into three broad categories: executive, administrative or professional. The good news is that the new rule does not change the definitions or elements of these duties, so if an employee’s responsibilities meet the definition now, they will still meet it after July 1.

What is changing is the minimum payment threshold. Under the current rules, an employee must be paid at least $684 per week ($35,568 per year) to be “exempt” from the overtime and minimum wage protections. Starting July 1, salaried employees will need to make at least $844 per week ($43,888 per year) to continue to be exempt from overtime. This standard salary level will increase on January 1, 2025, to $1,128 per week. The rule also provides for regular adjustments to this threshold amount starting in July 2027 and every three years afterward.

The FLSA also has a similar exemption for highly compensated individuals whose primary duties may not fit squarely within the executive, administrative or professional categories. To fall within this exemption, these employees need to have responsibilities that have them regularly and customarily performing executive, administrative or professional tasks, and they need to meet a higher compensation threshold. Under the current rule, highly compensated individuals must still earn at least $684 per week in salary or fee, but they must have an annual compensation of at least $107,432 per year. Starting in July, under the new rule, the weekly salary limits are the same as with the other exempt employees above ($844 per week) but the annual compensation total moves to $132,964 per year. This threshold increases on January 1, 2025, to $151,164 per year (and at least $1,128 per week) and with the same three-year adjustment schedule as above.

The practical effect of these changes will be if you have (or are) an employee who receives a salary between the old and new threshold, $35,568 to $43,888: they will become eligible for overtime unless they get a raise to stay exempt. Rule changes like this are also a good time to review the status of your other salaried employees to ensure that their work duties continue to meet the requirements for exemption. As mentioned above, the rules are quite technical, and the Department of Labor provides this small business compliance guide to help. Enlisting the advice of your own experts, such as business consultants and attorneys, in these matters can be easier than trying to figure it out on your own.

For guidance on compliance concerns that may impact your medical spa, stay up to date with AmSpa’s online resources or attend a Medical Spa Boot Camp for in-depth analysis from industry experts.

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