In the ever-evolving landscape of human resources, staying ahead of regulatory changes is essential for HR professionals and leaders of small to medium-sized businesses. The recent announcements by the Department of Labor (DOL) and the Federal Trade Commission (FTC) have introduced significant shifts that will impact the way companies manage their workforce. This blog post will guide you through these changes and offer practical advice on how to adapt effectively.
Major Increase in DOL Earning Thresholds
The Department of Labor (DOL) has released a final rule that significantly raises the earning thresholds for salary/exempt employees. This update is crucial for businesses as it directly impacts how employees are classified and compensated. Here’s what you need to know:
- Current vs. New Thresholds: Currently, to be considered a salary/exempt employee, the earnings threshold is $684 per week, or $35,568 annually. Starting July 1, 2024, this threshold will increase to $844 per week ($43,888 annually). On January 1, 2025, it will rise again to $1,128 per week ($58,656 annually).
- Implications: This tiered approach means that many employees currently classified as salary/exempt may no longer meet the criteria unless their pay is adjusted. Businesses need to review their salaried employees’ pay and decide whether to increase salaries or reclassify employees as non-exempt.
FTC’s Ban on Noncompete Agreements
In another significant regulatory change, the Federal Trade Commission (FTC) has announced a ruling that bans most noncompete clauses, which has profound implications for employee contracts and business operations. Key points include:
- Broad Scope: This federal rule nullifies existing noncompete agreements and prevents the creation of new ones, with a few exceptions. Notably, noncompete agreements already in effect for senior executives (earning above $151,164 and in a policy-making role) can still be enforced. NEW agreements for senior executives would no longer be allowed under this FTC rule. Noncompete agreements related to the sale of a business or an ownership interest would still be allowed.
- Adaptation Strategies: Companies must review their current noncompete agreements and consult with legal experts to understand the potential impacts. Alternative protective measures, such as non-solicitation and non-disclosure agreements, can still safeguard business interests without violating the new ban.
Preparing for the Changes
Here are steps you can take to ensure compliance and adapt to the changes:
- Audit: Conduct an audit of your current salary structures and noncompete agreements. Identify which employees and contracts would be affected by the new rules.
- Consult Experts: Work with HR consultants and employment attorneys to navigate the legal complexities and develop compliant strategies.
- Communicate Clearly: Inform affected employees about changes in their employment status and/or contract terms. Transparency will help maintain trust and ease the transition.
- Stay Informed: Given the automatic recalculation of the DOL thresholds every three years beginning in 2027 and potential legal challenges to the FTC rule, stay informed and agile to adapt to future developments.
Conclusion
The changes in the DOL earning thresholds and the FTC’s ban on noncompete agreements represent significant shifts in HR regulations for businesses. By understanding these changes and preparing proactively, business leaders can ensure that their organizations remain compliant and competitive in a dynamic regulatory environment.