The Word on the Street is True – Effective July 1st, 2024, there is new legislation that might affect the amount you will be paying your employees.
I am not kidding, as these lips are telling no lie: The salary threshold for exempt salaried executive, administrative, or professional employees is increasing soon, and your business must be prepared.
Check out the Department of Labor website, to read the regulations in more depth.
The New Salary Minimum:
As of July 1, 2024, the annual salary that triggers a threshold for exempt employees will be $43,888. This is more than $8,000 which is greater than the current threshold of $35,568.
Then, on January 1, 2025, the limit will rise to $58,656.
The highly compensated employee’s threshold will also be adjusted, and starting July 1, 2027, the salary amounts for this group of workers will be indexed every three years based on the most recent wage information.
Hold on there’s more and this is “NO FAKE” news:
All of your exempt employees who are making less than the new thresholds either have to be given a salary increase to at least that $43,888 or changed over to non-exempt (hourly) pay. That includes your other exempt salaried professionals—site supervisors, managers, and clinicians.
The Numbers You Need to Know:
The standard salary level:
- Effective July 1st 2024: $844 per week ($43,888 per year)
- Effective January 1st 2025: $1,128 per week ($58,656 per year
The highly compensated:
- Effective July 1st 2024: $132,964 per year
- Effective Jan 1st 2025: 151,164 per year
Note: If your state law requires a higher salary test than the federal requirement, you should follow your state’s rule. This new law favors the position of employees, ensuring employees get paid for the hours worked and to stay on top of inflation.
Preparing Your Business: Action Steps:
Here are some essential steps for medical clinics, therapy practices, medical spas, gym & fitness centers, veterinary, chiropractic and bodywork business owners to take in response to these changes:
- Understand the Details surrounding the Changes First and foremost, understand what is included in the new rules. The press release from the US Department of Labor and the actual regulation can be your sources to read the specifics. Gaining all the facts ensures that you can plan with more intention.
- Examine Employee Compensation. Analyze the pay your exempt employees are receiving. Make sure that they are raised to at least the new minimum salary or prepare to reclassify these employees as non-exempt. Comply with overtime requirements and other non-exempt legal rights and benefits.
- Determine the Financial Impact A payroll change can show up right up front:. Re-forecast your budget to account for these changes. Determine how much your payroll expenses will increase and strategize how to cover this cost without losing your financial health.
- Job Descriptions and Duties The salary increase is based on the job duties and not the job title. Make sure your descriptions adequately describe the duties each employee will be doing. This clarity will enable them to decide whether they should remain exempt or be reclassified. It will also facilitate well-thought-out decisions on salary adjustments.
- Communicate with Your Team The key is transparency. Inform your staff about the upcoming changes. Explain to them clearly how the new salary thresholds are going to impact on their compensation and what, in case of anything, possible reclassification could mean. Clear communication helps in managing expectations and maintaining employee morale.
Financial Impact: Re-forecast Your Budget
Having an idea of the pay raises suggests that you might want to re-forecast your budget. The best way to do this is as follows:
- Identify All Affected Employees: Employees who are earning below the new salary bases now. Find the total cost of raising their salaries or overtime compensation in case they are treated as non-exempt.
- Project Your Future Payroll Expenditure: Estimate your future payroll expenditure from the new salary thresholds. This should also include probable overtime pay for reclassified employees. Such a projection will make your financial obligation much more straightforward.
- Adjust Your Financial Plan: Include the increased payroll expense in your budget. Scan through your plans and cut costs or increase revenues to cover the increased cost. Consider renegotiating vendor contracts, finding efficiencies in operations, or new revenue streams.
- Monitor Cash Flow: Keep an eye on your cash flow. The additional payroll expenses may stress your cash. Keep a very close watch on the regularly prepared cash flow statements and take action when you observe adverse trends.
The new salary minimums are challenging, but with thoughtful planning and proactive steps, your business can come out of this transition on a positive footing. Know the new regulations, review and adjust employee compensation, re-forecast your budget, and communicate clearly with your team, and you’ll be well-prepared to meet these new requirements.
After all, compliance is not only a tool for avoiding penalties but also for fair compensation among employees and financial feasibility within the business. So, while making all these corrections, always keep in mind the bigger picture: that a well-compensated and motivated workforce is a secret to your business’s success.
If you need further guidance, don’t hesitate to schedule an appointment with Healthy Bodies of Finance – where all your accounting, bookkeeping, and financial management challenges are met with understanding, expertise, and a commitment to your peace of mind.
This article is designed to provide information only and should not be considered legal or tax advice. Because of the complexity of the law and the variables in your own personal tax and accounting situation, you can’t rely on our advice specifically related to your unique circumstances. In order to get the best tax savings and legal advice available to you, you should consult with your own accountant, attorney or advisor regarding your particular facts and circumstances. Healthy Bodies of Finance is an accounting firm that specializes in working with health and wellness providers. We provide monthly accounting & bookkeeping services and financial education. For more information on our specialized services for health and wellness providers please contact us at [email protected]