This week, the U.S. Department of Labor (DOL) issued new regulations governing which employees must be paid for every hour above 40 worked in any week.
A similar move to increase the salary thresholds under the Fair Labor Standards Act (FLSA) in 2016 was successfully challenged and never went into effect. It is uncertain if efforts to push back this round of revisions will hold off this attempt.
Many public relations and marketing agencies will be impacted by these rules and the timeline for implementation is short, so it’s time to start preparing.
How is overtime eligibility determined?
First, let’s look at what overtime rules actually require – especially since many agency owners have probably never even given much thought to overtime regulations.
Overtime pay starts with determining whether an employee is “exempt” or “non-exempt” to see if they are eligible.
The test relies on two main factors: what they do and how much they are paid.
The “what they do” test
Most agencies have determined that the bulk of their employees meet the “professional” test for exemption. (Note that there are other exemptions that may apply, too, but this is the one that covers the largest number of agency workers.)
DOL’s guidance on that exemption describes it this way:
“The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment.”
The agency goes on to say that “A professional employee generally uses the advanced knowledge to analyze, interpret or make deductions from varying facts or circumstances.”
That seems to clearly describe most employees of a PR or marketing agency these days, though it is always prudent to review the status of all of your employees with HR and legal advisors who are familiar with the intricacies of not just federal but also any state or local requirements.
The new regulations do not seek to change this standard.
The “how much they are paid” test
At present, employees must be paid at least $35,568 annually – in addition to meeting the professional test outlined above – in order to be classified as exempt from overtime pay.
So even if you have a “professional” employee as described by the regulations, they still need to clear that minimum salary threshold in order to be ineligible for overtime.
Since even most small agencies pay full-time employees more than that in 2024, it hasn’t been a major consideration.
This is the part of the rule that the Department of Labor is currently seeking to change. On July 1, 2024 – just over 60 days from now – the threshold will move up to $43,888.
More importantly, on January 1, 2025, the minimum will increase substantially to $58,656.
The time gap between those two increases is very short, so really you need to be planning in terms of the higher number. If it is not successfully challenged in the courts or Congress before January 1, it will likely begin to impact many agencies.
So what now?
Sitting back and waiting for the rules to be fought off again doesn’t represent a viable strategy.
Even if the federal increase is delayed or adjusted, states have already begun to change their own requirements – and the attention on these rules will likely only fuel those efforts, especially if the DOL’s attempt is not successful.
Since most agencies haven’t recently reviewed their own determinations of exempt employees, now is the time to make sure you are in compliance with current rules while also preparing for the potential change.
Here are the specific steps I recommend:
- Review all of your employees with a professional HR or legal advisor who can help ensure that your team members are properly classified today.
- Note which currently exempt employees earn less than the July 1 and January 1 thresholds so that you know which situations will need to be addressed by those dates.
- Determine whether you will increase salaries to achieve compliance or if you want to set up an overtime pay compliance program.
- Create overtime rules and processes for any employees that can’t be classified as exempt (either today or in the future).
Because there is still some question about whether the new salary levels will take effect, SHRM (the Society for Human Resource Management) encourages employers to proceed cautiously and not change pay structures immediately. That is likely good advice, but if the impact to your business would be relatively small (for example, you have one employee at $55,000 today) it may be worth making the adjustment now so you don’t need to think about it later.
SAGA will continue to share updates on this issue as warranted, so be sure to sign up for our regular newsletter to stay in the loop.
