In the light of the Department of Labor’s new regulations increasing the salary threshold for exempt employees, employers have a good deal of work ahead of them to meet the December 1st effective date. Remember that exempt employees are not entitled to overtime, but non-exempt employees must be paid at time and one half their regular hourly rates for all hours worked over 40 in a workweek. The new regulations increase the salary threshold from $455 per week or $23,660 annually to $913 per week or $47,476 annually. Although the new regulation goes into effect on December 1, 2016, don’t delay in preparing. Here’s our to five actions for employers to achieve compliance with the new overtime rules:
1.) Renew all of your exempt employees: We recommend that our clients regularly review the status of their exempt employees to make sure that they really should be considered exempt. Typically this involves taking a close look at those considered to be “administrative” exempt employees. We find that there are fewer mistakes with the “executive” and “professional” exemption categories. Since you have to look at the new salary threshold anyway, now is a good a time as any to take a look at the duties as well. When looking at the duties, remember, it’s not what the job description says the employee does, it’s what the employee actually does that matters;
2.) Evaluate the impacts for those below the threshold: Start with a review of your budgets to determine what has been set aside for overtime. Then look at each employee who would now be non-exempt and determine what the impact of paying that employee overtime might be. Some factors to consider are whether or not the employee’s duties can be changed to reduce overtime impacts, whether or not job duties that cause overtime can be shared amongst employees, and whether or not job functions can be consolidated such that the increase in salary to one position to make it exempt may be offset by the elimination of another full or part-time position. Of course, you can increase the salary to the new exempt level, if that is cost effective. Please note that if you have unions, changing jobs and eliminating position may be subject to the unions’ bargaining rights depending upon how your contract is worded;
3.) Evaluate the “10% rule”: The new rule will allow, for non-Highly Compensated Employees, up to 10% of the salary threshold to be made up of non-discretionary bonuses, incentive pay, or commissions provided that the payment are made on, at a minimum, a quarterly basis. This means that theses types of bonus and incentive pay payments could comprise up to $4,747.60 of the $47,476 threshold. This will only work if you are already relatively close to the threshold, but it offers an alternative to increasing the salary of employee or dealing with the overtime costs. Not to mention, you can spread the payments out because the requirement is only that they be paid quarterly. This may not be the best option, but at least it is an option to consider;
4.) Prepare for updating: The current salary threshold has not been adjusted since 2004. The new regulation requires automatic updating every three (3) years starting January 1, 2020. These updates will raise the standard threshold to the 40th percentile of full-time salaried workers in the lowest-wage Census region. It is estimated that, in 2020, this increase will be to $51,168. The time to start thinking about this increase and the impacts is now. This increase should factor into employers long range fiscal planning as well plans for structuring the workplace;
5.) Think about psychological impacts on employees: For many employees, being “exempt” means something. We have done employment audits where it was discovered that an employee should really be non-exempt. We thought we were delivering good news of future overtime and back-pay, but the employee viewed being “reduced” to hourly and non-exempt was a slap in the face. Be prepared for such reactions in advance by meeting with the employees who will be impacted by this new law and explaining to them that it is not their performance or commitment to the organization that is causing this; it’s just the law now.
As this topic evolves and as the deadline for enforcement nears, we know that there will be more issues and questions. Continue to monitor this blog for updates. As always, if we can be of any assistance, please do not hesitate to contact us.