In the midst of rapidly evolving employment regulations, it is crucial to stay informed and ensure your business remains compliant. Sweeping changes to employment regulations that were announced recently by the Department of Labor (DOL) and the U.S. Federal Trade Commission (FTC) are expected to dramatically impact businesses across the U.S.
Minimum Salary Levels and Overtime Pay
Effective July 1st, 2024, the Department of Labor’s minimum salary exempt threshold is increasing to $844 weekly and $43,888.00 annually. This threshold will rise again to $1,128 weekly and $58,656 annually on January 1st, 2025. An employee’s job duties will determine overtime exemption status for most salaried employees. It’s essential to note that some states may set higher thresholds than the federal minimum.
The new rule also raises the total annual compensation requirement for highly compensated employees. On July 1st, 2024, this requirement increases to $132,964 annually and further to $151,164 annually on January 1st, 2025.
New Ruling on 1099 Workers
The DOL’s final ruling on 1099 workers significantly impacts the classification of workers as either independent contractors or employees. It rescinds the prior ruling and establishes a comprehensive, multi-factor approach to determine worker status. The new 6-Factor “Totality-of-the-Circumstances” approach considers each of the following factors equally:
- The worker’s opportunity for profit or loss
- Investment by the parties
- The work relationship’s permanency
- The nature and degree of control over their work
- Whether their work is an integral part of the employer’s business
- The worker’s skill and initiative
Under the new rule, all six factors are used to determine whether an individual is an independent contractor in business for themselves or is economically dependent on the potential employer. The ruling broadens the DOL’s definition of an employee, making it more difficult to classify certain workers as independent contractors.
Impact of the Employment Regulations
With the salary level adjustments in July 2024, the DOL has estimated that 1 million workers across the U.S. will be impacted with another 3 million works to be impacted with the second adjustment in January 2025. Per the new ruling, salary thresholds will be automatically updated every three years after that based on current wage data.
Adjusting the salaries of those impacted will also require addressing employees who are near these limits. How you manage their pay expectations can impact your entire company.
Businesses with 1099 workers should also review any independent contractor relationships they have and verify under the new 6-Factor “Totality-of-the-Circumstances” test to determine whether any adjustments in employment need to be made. Accurate classification is essential to avoid costly and disruptive claims for minimum wage and overtime violations.
Nationwide Ban on Noncompete Agreements
The Federal Trade Commission also issued a ruling on noncompete agreements that will significantly impact employment practices across the U.S. Under the new ruling, existing noncompete agreements for most workers will no longer be enforceable. This ruling is set to be effective 120 days after publication into the Federal Register, which is expected to be in early September 2024.
The ban on noncompete agreements encompasses all U.S. workers, including both employees and independent contractors, with few exceptions dictated by the FTC’s statutory authority. Notably, financial service industries, banks, and medical physicians are excluded from this ban.
Existing noncompete agreements for Senior Executives can remain in force, but employers are banned from entering or attempting to enforce any new noncompete agreements, even if they involve Senior Executives. Senior Executives are defined as workers earning more than $151,164.00 annually and who are in a position to make policy changes.
Employers are required to deliver notifications to both current and former employees who were subject to noncompete clauses. These notifications must be personalized to each individual and clearly communicate that their noncompete clause cannot be legally enforced against them. While the ban on noncompete agreements is far-reaching, there are exceptions and nuances to consider. Understanding these exceptions is essential for ensuring compliance and understanding the full impact this regulation will have on your business.
Preparing for the Employment Regulations
Like many new laws, the noncompete ruling is likely to face legal challenges, potentially leading to delays in enforcement. While some companies might opt for a “wait and see” stance, a more prudent approach would involve reassessing current employment practices, identifying necessary adjustments for compliance, and carefully evaluating the cost implications of workplace changes.
As potential lawsuits progress through the legal system, discussions about these regulatory changes will persist across various public platforms. As employees become increasingly aware of these regulatory shifts, it is likely that their views on the workplace will change.
Here are proactive steps employers can take to enhance employee satisfaction, engagement, and retention amid regulatory changes:
- Foster open communication channels and actively solicit feedback from employees to address their concerns and ideas for navigating changes effectively.
- Highlight your company’s dedication to employee development, offering career advancement paths, competitive compensation packages, and comprehensive benefits.
- Explore options for flexible work arrangement or other initiatives promoting a work-life balance to bolster employee engagement and retention.
- Review existing retention strategies and adapt them to meet evolving needs effectively.
- Stay abreast of regulatory updates and their impact on employee perceptions and concerns.
- Implement non-disclosure or confidentiality agreements to safeguard sensitive information, as these agreements are not affected by the FTC ruling.
Here for You
At Ataraxis PEO, we handle the intricacies of constantly evolving laws and regulations, ensuring your business remains compliant and ready for the future. Our team of subject matter experts will not only collaborate with you on employment strategies, but we will do the work and provide the day-to-day HR support your employees require to thrive, just like an in-house department would do.
You will be able to leverage our expertise in employee development, engagement, and regulatory compliance while having more time to focus on managing and growing your business.
We are happy to talk through any questions or thoughts you have about these new rules and laws, regulatory compliance, or challenges in general you are facing in today’s highly competitive business environment and how they may directly affect your business.
Contact us today