Federal Overtime Rules Changing July 1

Starting on July 1, 2024, employees who earn less than $43,888 annually ($844 weekly) will be eligible for overtime pay unless they fall under a Fair Labor Standards Act (FLSA) exemption. This is an increase from the previous threshold of $35,568 annually ($684 per week). Another increase is scheduled for January 1, 2025, and automatic increases will occur every three years thereafter.

Employers must decide whether to raise salaries or reclassify employees as nonexempt if exempt employees make less than the new minimum salary requirements.

Action Items to Prepare

The first step is to evaluate your staff job descriptions, job classifications, and weekly or annual pay to determine compliance. Should the position remain exempt or convert to nonexempt? Fisher & Phillips offers a thorough preparation checklist. 

Understanding Exempt and Nonexempt Job Classification

Jobs are categorized as either nonexempt or exempt based on the duties performed. The correct classification should be indicated on the job description.

Nonexempt employees are entitled to overtime pay for all hours worked beyond 40 in a workweek. Some states, such as Alaska, California, Colorado, and Nevada have additional overtime laws for daily overtime or work on the seventh consecutive day of the workweek.

An employee may be exempt from overtime if the job requirements meet all three exemption tests:

• Salary Basis Test: Employees must be paid on a salary basis. A salary is a predetermined, fixed amount paid in any week that the person performs any work, regardless of the quality or quantity.

• Salary Level Test: Beginning July 1, 2024, employees must earn at least $844 a week ($43,888 for a full-year worker). 

• Duties Test: Employees must perform specific defined job duties. This is where most mistakes occur. A job title or job description with the words “administrator” or “manager” does not automatically mean the worker performs the job tasks required for exempt status.

There are four categories In the Duties Test sometimes known as the “white-collar exemptions.” The duties are categorized as executive, administrative, professional, and creative professional.

Executives must:

• Primarily perform management duties.

• Regularly supervise at least two full-time-equivalent employees (not volunteers).

• Have authority or significant influence in hiring, firing, discipline, and promotion decisions affecting employees.

Administrators must:

• Primarily perform office or non-manual work related to the ministry’s management or business operations. Examples include business administrators, daycare directors, and school principals.

• Use discretion and independent judgment in making decisions regarding matters of significance. Most support staff and clerical workers don’t meet this standard. 

The Department of Labor clarifies the definition of matters of significance. Remember, it is based on what the primary job duties require — not the person in the job.

Professionals must:

• Do work requiring advanced knowledge in a field of science or learning, such as theology, teaching, accounting, or law. Examples include clergy, teachers, and attorneys.

Creative Professionals must:

• Do work involving invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor. Examples include musicians, writers, and actors. 

The Ministerial Exception

Apart from the white-collar exemptions, the courts have established a “ministerial exception” that frees clergy from federal wage and hour laws. The FLSA applies the same standard of duties test for clergy as the ministerial exception under Title VII.

In general, if the employee’s primary duties involve teaching, spreading the faith, church governance, supervising a religious order, or supervising or participating in religious ritual and worship, he or she should be considered clergy.

This exception is straightforward for traditional clergy roles, such as pastors and ministers who spend a significant amount of time performing essential religious duties. However, it can become ambiguous when applied to roles not traditionally or distinctly associated with clergy.

Good Practices

Job descriptions and employee policy manuals should be updated to include the two types of employee classifications, time tracking requirements, and overtime policies. If an organization’s employees are only allowed to work overtime with prior management authorization, the policy manual must state it clearly.

Job descriptions should accurately reflect the correct job classifications and required duties. If a job has been exempted using the administrative duties test, the job requirements should clearly state the exempt job duties. For example, the administrative professional role “is responsible for and having the authority to negotiate and sign contracts for the employer.” When creating a job description, it's crucial to ensure that it is not solely created to avoid paying overtime.

When questions arise, a ministry should consult with a knowledgeable human resources professional or employment law attorney to classify positions correctly.

FAQs

What happens if a job is misclassified as exempt from overtime?

According to the FLSA, misapplying exemptions can lead to liability for back wages, damages, and penalties. For example, if a clerical or administrative role is mistakenly labeled as exempt and the employee works more than 40 hours a week, they could be entitled to years of unpaid overtime pay.

Are ministers who are not compensated on a salary basis or who earn a salary below the salary test covered by FLSA?

The court ruled that the "ministerial exception" to the FLSA applies when the employer is a religious institution and the employee's primary duties are religious in nature. However, this exception does not apply to religious employees of secular employers or to secular employees of religious employers.

Is the job exempt if my employee is paid a salary or makes more than $43,888 ($844 a week)? Or both?

No, exempt jobs must pass all three tests, as noted above. 

Can an exempt job be part-time and salaried?

Yes, if the employee’s job duties pass all three tests, as noted above.

Can a nonexempt job be part-time and salaried? 

The term "salaried" refers to an individual who receives a fixed weekly amount regardless of the number of hours worked. Nonexempt employees can be paid on a salaried, hourly, or other basis. However, nonexempt employees are entitled to receive pay for all hours worked and overtime pay per federal and state laws. For example, if a part-time employee is paid a salary for 20 hours of work per week but ends up working 21 hours, they must be compensated for the extra hour at the regular rate of pay.

Employers should convert the salary of part-time employees to an hourly rate. Most payroll processing and timekeeping software can handle full-time salaried and overtime pay if the employee tracks their time. However, the same software may only partially manage part-time salaried employees and additional hours of pay, as described in the example above. 

Regardless, nonexempt employees must track and report all hours worked. Working off the clock is illegal for nonexempt employees. In the event of legal proceedings, the employer will be required to provide timekeeping records as proof. 

If an employee works overtime one week and less than 40 hours the following week, can the overtime be moved to the next week and paid as regular time?

No. By law, overtime pay cannot be waived even if the employee and employer agree.

What additional changes are on the way?

As of January 1, 2025, the salary threshold rises to $58,656 a year ($1,128 a week). The salary threshold will automatically increase every three years after that.

Please note that this material is provided for informational purposes only and does not constitute legal advice.

Helping churches and nonprofits manage their HR and payroll operations is one way that Auxilio brings needed expertise and reduces operational burden. We consult with our client partners on the classification of employees and help reclassify employees when needed. If your church or nonprofit is hiring, we recommend talking with your Auxilio team about the proper classification of each role before making any job offer. 

If you’re not an Auxilio client partner and would like to learn more, contact us at hello@auxilio.partners