By Mark Bradley, Insurance Services • BMA Financial
Executive Editor’s Note: After receiving this article, I contacted BMA Financial to see if they could clarify how this will affect churches. After the original article, Mark has additional information regarding some basic questions churches may have.
The US Department of Labor (DOL) on April 23 released the new final rule changes governing the classification of employees as Salaried (Exempt) and Hourly (Non-Exempt). These regulations apply to all employers, including churches.
The new requirements raise the minimum compensation for an employee to be classified as Salaried (Exempt) from the current level of $35,568 to $58,656. Employees earning less than this annually are required to be classified as Hourly (Non-Exempt) and are eligible for (1.5X) overtime for hours in excess of 40 in a work week.
This is being implemented in two phases to make it easier for employers:
- Phase I — Effective 7/1/24, the threshold is increased from the current $35,568 to $43,888.
- Phase II — Effective 1/1/25, the threshold is increased from $43,888 to $58,656.
Employers have two options:
• Increasing salaried (exempt) employee’s compensation to meet these new requirements, or
• Reclassifying them as hourly (non-exempt), making them eligible for overtime (1.5X) for all hours over 40 per week.
As is already the requirement, employers are required to track/capture hours worked for all hourly (non-exempt) employees to ensure that any overtime hours above 40/week are paid at 1.5X the normal hourly rate.
Have Questions? We’re here to help! BMA Financial Insurance Services is your trusted partner that can help bring clarity and understanding to your situation. Let us help explain your options. We focus on educating our churches and pastors to help them make well-informed decisions about these important topics. Contact me at (501) 499-4205 or mbradley@bmaamerica.org.
Some Things to Note
• This is not a change in how the DOL defines Salaried (Exempt) vs Hourly (Non-Exempt). Instead, only a change in the compensation levels that defines these two classifications. The Fair Labor Standards Act (FLSA) has existed for over 50 years.
• Today, W-2 employees making less than $35,568 are already required to be classified as Hourly (Non-Exempt).
• Today, only W-2 employees making $35,568 or more are eligible to be classified as Salaried (Exempt).
• These required minimum compensation levels for the Salaried (Exempt) classification are changing to $43,888 effective 7/1/24 and $58,656 effective 1/1/25.
As such, any church W-2 employees today should be classified accordingly based on current requirements (less than/greater than $35,568). Again, this change only moves the compensation requirement thresholds for the two classifications.
An employee being bivocational is not a factor as the requirements apply to their W-2 status in each organization where they are employed. Said another way, only their compensation from each (single) employer applies to these requirements in determining their classification (Salaried or Hourly) within that employer. There is no combining of earnings from different employers.
These regulations do not apply to ex-pat missionaries out of the US.
The compensation thresholds were last changed in 2019 when the Salary Test threshold was increased from approximately $27,800 to the current $35,568, so it has been five years since the last change.
The rationale behind this is the federal government’s perspective that salaried employees who are exempt from overtime are often not being compensated fairly by employers as salaried employees can work over 40 hours a week but are still only paid their salary amount. As such, the federal government feels that sweeping millions more workers into the (Non-Exempt) overtime eligible classification is good for those employees. The press headlines for this spin the theme as expanding overtime protections.
Here are two specific questions received from a church:
• Does this rule apply to part-time salaried? There isn’t any such thing as “part-time salaried.” Salaried positions, by DOL definition, have not only earnings requirements but duties requirements as well. Unfortunately, churches often use this term to describe positions that are not full-time, and workers are paid a flat amount (bi-weekly, monthly, etc.). If those are W-2 positions and earning less than the requirements, they will be required to be reclassified as hourly. As noted above, today’s salary requirementis $35,568, so any position below that already doesnot qualify as salaried.
• If we switch many of our staff over to hourly, how do we distinguish between work and service hours? Any hours employees perform work-related activities that are part of their job duties are compensable.