“The rules for salaried employees changed… does this mean I get a raise?!” You Ask—We Answer!
It’s July!
What does that mean?
The new federal rules for exempt employees have started taking effect. We’re here to help with the most common questions the AADOM community has sent us on this topic!
If you pay anyone a salary that is less than $58,656, this article is for you!
Remember, any time you have an HR issue that either stumps you or want a different perspective on how to solve it, submit it here for us HR nerds here at CEDR to help you each month during HR Tuesday.
This month, the questions submitted heavily focused on the new federal rules for exempt employees, so we decided to focus our article on that.
Here’s a Quick Overview
First things first, let’s clarify what we’re talking about with this exempt and salary business.
When it comes down to it, you can set a pay structure practically however you want. Some businesses pay everyone on a salaried basis, some pay everyone hourly, and many have a mix of pay methods based on individual positions.
What’s important?
Knowing whether the person you are paying is exempt or non-exempt from the federal Fair Labor Standards Act (FLSA).
Most employees are non-exempt, meaning all the FLSA rules apply. This means that you need to have records of their hours worked and pay overtime if they go over 40 hours in a workweek. This is the case no matter how you pay the person. You can put a non-exempt employee on salary, but you still need to have them clock in and out, and you still have to pay overtime.
Simply put, salary alone doesn’t change your legal obligations under the FLSA.
You can only stop having the person clock and stop paying overtime if the employee qualifies to be exempt from the FLSA.
In a dental office, this generally means they are a high-level manager or a doctor. We’re putting doctor compensation aside this month, as doctors get an extra special exception to the rule that allows you to pay them using methods like percentages of production or collections.
For managers, you have only one option if you want them to be exempt – they have to be paid on a salaried basis. And, that salary has to be at least the minimum rate set by the federal Department of Labor (DOL).
The salary rate just got updated for the first time in many years, so here’s the new rule:
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- Before July 1, 2024: $684 per week (equivalent to $35,568 per year)
- July 1, 2024: $844 per week (equivalent to $43,888 per year)
- January 1, 2025: $1,128 per week (equivalent to $58,656 per year)
This means that if you or any of your employees are being paid as an exempt salaried manager, you need to make sure that the salary amounts are at or above those minimums by the specified dates.
Many employees across the country who are currently paid as exempt employees are going to be experiencing the shift to hourly pay. This may include many office managers in dental offices.
Paying someone as if they’re exempt when they don’t make a high enough salary or don’t meet the job duty requirements to be an exempt employee means they are legally misclassified in the eyes of the DOL. One audit or employee complaint and you could be on the hook for thousands of dollars. Check out this episode of What the Hell Just Happened?! for more on what can happen if you classify employees incorrectly.
Now, let’s get to your questions about how this all works:
Question: I’m our office manager and I’m currently paid $50,000. I think I should get a raise based on the new rules, but my doctor is saying she’s going to make me hourly instead. Who is right?
The good news is that you make enough to meet the new July 1, 2024, exempt threshold, so you have until the end of the year to figure out how to approach this.
The best way to handle this will depend on several factors, so neither of you is necessarily “right” here.
In making the decision on what to do, both you and the doctor need to take into account the average number of hours you work per week. If you are non-exempt, you’ll be eligible for overtime pay that you were not previously receiving. You’ll need to be tracking all of your time spent working, which may include after-hours and weekend staffing and patient needs.
A “downside” of being exempt is that you don’t get any extra pay for the extra hours you put in. For this reason many individuals absolutely prefer to be non-exempt so that they never feel shorted and they can get overtime pay.
In most true exempt positions, however, things should balance out so that you’re seeing the benefits of the greater flexibility in being exempt.
But this means that you shouldn’t assume being switched to hourly is less advantageous. The take-home pay as a non-exempt employee could actually be more than expected. It’s a good idea to do a rough audit of how many hours you generally put in each week.
Calculate what your pay would be based on your salary’s equivalent hourly rate. If this puts you above or close to the new salary threshold amount, the better business decision may, in fact, be to give you a raise and keep you exempt.
If you are still substantially below the amount, however, the doctor may need to make the business decision to convert you to non-exempt status. What you can do is talk about expectations for after-hours responsibilities as a non-exempt employee and set goals for getting back to exempt status.
Of course, once you start looking at counting up your own hours you may be eyeing that overtime opportunity! We leave that debate and decision to you and the business owner!
Question: My doctor is saying she’s going to put our team leads on hourly instead of salary because they’re not allowed to be on salary anymore. Is that a demotion?
Being a salaried employee can carry a lot of status with it in many peoples’ minds, so it is understandable that being changed from salary to hourly can feel like a slight to an employee.
If you have a team lead who feels like they’re being demoted, take some time to explain to them why the change is happening. Reaffirm to them that their position on your team is not changing and that you are only having to make an adjustment due to legal requirements.
Remind them that no one on their team will even know that their pay structure has changed, so their relationship with their team will not be impacted. They retain the same responsibilities and position as a member of management.
If salary is really important to someone, you can always consider paying them a salary as a non-exempt employee. However, this can get complicated because you still owe them overtime if they work over 40 hours a week.
People tend to not do as good of a job clocking in and out when they think it’s not as important since they’re on salary. They also don’t like their salary being adjusted when they miss a lot of work, even though you are able to make those types of adjustments when the salaried employee is non-exempt.
If you’re considering making anyone a salaried non-exempt employee, we highly recommend talking to a CEDR advisor first to make sure you understand what you can and can’t do, and that it’s documented clearly for the employee.
Question: How do I adjust my hygienist’s pay? They’re exempt and paid on a daily rate.
Exempt and daily rate pay don’t mix unless it’s a doctor.
The rules here are pretty absolute. Salaried means salaried. It has to be a fixed amount per week. A fixed amount per day doesn’t cut it under federal rules. Nor does paying based on any type of commission.
It has to be a flat salary or there simply is no way for the hygienist to be exempt.
To avoid overtime, your hygienist would need to be paid on a salaried basis and meet additional exempt requirements.
If you have been paying a hygienist as if they were an exempt employee, now is the time to audit their pay history to confirm that they have always been paid:
- For all hours worked (even time between patients, and time in meetings!).
- At least minimum wage for all of that time.
- They were paid overtime if they worked over 40 hours in a week (or over 8 hours a day in some states like Alaska and California).
Unfortunately, if they were paid a daily rate, they may not have been asked to clock their time, so you’ll have to make your best estimates based on this data.
The easiest thing to do is to change them to hourly pay as soon as possible to avoid any liability for the misclassification. If you want them to be exempt instead, you not only need to get them on salary but also see if they qualify under the executive or administrative exemptions—which usually is not the case for a hygienist unless they are the team lead and hold supervisory authority.
Oh, and your hygienist is also not a contractor.
Take our complimentary course on the topic here, which covers the DOL rules regarding classifying your employees correctly!
HAVE A QUESTION FOR CEDR? Submit your HR questions for CEDR to discuss on the next HR Tuesday LiveCast here!
