Discussing Employee Reclassification

The US Department of Labor (DOL) published changes to the Fair Labor Standards Act (FLSA) affecting which employees are eligible for overtime pay. The final rule increases the salary threshold for executive, administrative, and professional exemptions as well as highly compensated employees in two steps effective July 1, 2024, and January 1, 2025. The rule also provides for regular reviews of the salary threshold effective July 1, 2027, and every three years thereafter. These changes may prompt employers to reclassify employees from exempt to non-exempt status.

Why would I reclassify employees?

• Regulation changes offer employers an opportunity to review processes and adjust to ensure they are in compliance. Upon review, employers may determine that the position duties do not meet the requirements for exempt status as described in the DOL regulations
• Employees may no longer meet the new salary minimum threshold amounts to qualify for exempt status; Changes are outlined here.

While reclassifying positions may fulfill compliance requirements, implementing those changes may also lead to difficult conversations with employees. For many employees, exempt status may be seen as a prestigious and important step in advancing their careers, so a reclassification to nonexempt can feel like a demotion. Additionally, employees being reclassified to nonexempt must record/track their worked hours and may lose the work schedule flexibility associated with exempt status. For employees that are aware of the salary threshold changes, they may also question why they are being reclassified versus increasing their salary to meet the new threshold. Clear communication from employers will be key in navigating these potentially difficult conversations and mitigating possible morale issues.

Things to Focus on in Those Conversations

• Reclassification does not imply that the duties or value of the position have changed and this act on the part of the employer is not influenced by the quality of work being performed by the employee
• Reclassification reflects the employer’s commitment to compliance; reclassification may be required due to the change in law
• No status (exempt vs nonexempt) is “better” than the other - being classified as nonexempt simply entitles employees to be paid overtime pay for overtime hours worked
• The new rule does not require employers to raise an employee's pay to meet the salary threshold; an employee may perform exempt work while being classified and paid as nonexempt

Other Things to Keep in Mind

There are pending court challenges to the final rule; the challenges could lead to an injunction that may delay the implementation of the salary threshold changes. Employers should still consider and prepare for the strategies they will implement to remain compliant should the salary threshold changes hold, including how and when they want to have conversations with impacted employees.

If relying on managers to have conversations with employees, ensure managers are trained and equipped to be able to handle those conversations. Managers should understand the policies related to tracking/recording hours worked, attendance, and overtime pay. Managers should also be able to clearly communicate to employees how they will be impacted by these changes and what expectations are related to these policies. If the employer has benefits that are only offered to exempt employees, they will also want to indicate any related adjustments to impacted employees.

Employers may be able to alleviate some of the impacts related to reclassification. For employees working a fixed schedule, employers may use exception timekeeping and only require employees to indicate when deviations from the fixed schedule occur.

We will continue to provide updates on changes to the law as details become available. If you have questions, consult your AGH representative.

Sources: Overcome Communication Challenges When Reclassifying Employees (shrm.org); Department of Labor