On August 30, 2023, the United States Department of Labor (DOL) proposed a new rule that would increase the salary thresholds for overtime pay exemptions under the Fair Labor Standards Act (FLSA).
The new proposed rule would raise the minimum salary floor to $55,068 per year ($1,059 per week) for employees classified as exempt.
If the proposed ruling goes into effect, more employees would be eligible for overtime pay. If an employee earns less than $55,068 per year, then in most cases, the employee would need to be classified as non-exempt and would be subject to overtime pay rules. Currently, the salary threshold for exempt employees is $35,568 per year ($684 a week).
The proposed ruling isn’t law yet. A 60-day notice-and-comment period on the ruling ends November 7, 2023. Following this period, the DOL will review the comments and adjust the ruling, if necessary, before it becomes law. In the past, it took roughly ten months for both the 2019 proposed rule and the final rule to be established. If this current rulemaking process follows a comparable path, the final rule may come into effect sometime in the third quarter of 2024.
If the proposed ruling goes into effect, it will likely affect all businesses and organizations, including ministries. You can prepare in advance by looking at the following items:
Review your employee classifications. Ministries governed by the FLSA must classify their employees as non-exempt and exempt. Now’s a good time to ensure all your employees, including clergy, are properly classified.
Review pay for your exempt employees. Know which employees are performing exempt job duties. If the rule does go into effect and you pay the exempt employee less than $55,068 per year, your ministry will need to:
Raise the exempt employee’s salary to meet the proposed minimum salary level, or
Reclassify the employee as non-exempt. This will subject the employee’s pay to minimum hourly wage requirements and overtime.
Be ready to communicate new classification terms to affected employees. Some states require advanced notice of wage changes, so check on your local requirements.
The FLSA covers most ministries, so it is important that your ministry properly classify non-clergy employees as non-exempt or exempt.
Non-exempt employees must be paid minimum wage, and they must be paid overtime if they work more than 40 hours in any 7-day work week.
Exempt employees generally are paid on a salary basis and are not eligible to receive overtime. The courts have held that clergy (those who are ordained or who function in a similar religious capacity) are exempt from federal wage and hour laws. An exempt employee should meet all 3 of the qualifying tests, outlined below.
Some states and communities have even stricter minimum wage and overtime rules. For example, many states have a higher minimum wage than the one required by the federal government, and some require an overtime rate to be paid after the first eight hours of work on any given day. Your state labor office can provide information about these rules.
An exempt employee must meet all of following three tests:
Salary basis test—requires that an exempt employee be paid a salary— a predetermined and fixed amount that is not subject to reduction because of variations in the quality or quantity of work performed a salary.
Salary level test—requires that an exempt employee be paid at least the FLSA minimum salary amount. Currently, the salary threshold for exempt employees is $35,568 per year ($684 per week). The proposed ruling sets that amount at $55,068 per year ($1,059 per week).
Primary duties test—requires that an exempt employee typically perform executive, administrative, professional, or creative professional job duties. Learn more about exemption categories here. Job duties, not job titles, are the primary factors in passing this test.
Employees who fail to meet all three of these tests generally must be considered non-exempt and paid at least minimum wage and overtime. A non-exempt employee covered by the FLSA must receive overtime pay for hours worked in excess of 40 in a workweek at a rate not less than one and one-half their regular rate of pay.
Courts have created a ministerial exception that exempts clergy from federal wage and hour laws. However, this exception only applies to clergy. For non-clergy employees, ministries should follow FLSA rules and classify them as either exempt or non-exempt.
Ministry leaders should seek guidance from a locally licensed attorney and CPA when making determinations related to FLSA regulations, including any relevant state-specific mandates.