As some of you may be aware, the U.S. Department of Labor (DOL) recently announced new overtime regulations. The new regulations become effective on December 1, 2016 and all employers—regardless of size—must comply with these new regulations. These new regulations will significantly affect businesses, as these changes greatly affect worker salaries.
Here are the details of what has changed:
Effective December 1, 2016 the salary threshold for the “White Collar” exemptions will increase from the current $455 per week/ $23,660 per year to $913 per week, or $47,476 annually. The Highly Compensated Employee exemption will increase from the current $100,000 per year to $134,004 per year. Additionally, both the “White Collar” exemptions and the Highly Compensated Employee exemption will be automatically updated every three years, beginning January 1, 2020.
A link to the new regulations and more specific details regarding the automatic updates can be found here: https://www.dol.gov/featured/overtime
What you need to do—now:
Review your current list of Exempt, salaried employees and identify those employees who are either at or below the salary threshold of $47,476 per year
Ensure your Exempt employees are truly Exempt employees and are properly classified under the FLSA white collar exemptions
After completing a review of your Exempts, identify which employees you will elect to increase their salaries up to this new salary threshold. Additionally, you will need to determine which of your current Exempts you may elect to reclassify to Non-Exempt.
Example 1: Bob is currently an Operations Manager, who supervises a team of 4 employees, and his current salary is $44,900. He is currently classified as an Executive Exempt under the FLSA white collar exemptions. In order for you to continue to classify Bob as an Executive Exempt—after December 1, 2016—you would need to increase Bob’s salary up to the new minimum of at least $47,476 per year. This would result in your giving him a 5.7% salary increase in order to make this change.
Example 2: Brianna is currently works as an Administrative Assistant to the Director of Sales. Her current salary is $39, 900. She is currently classified as an Administrative Exempt. In order for you to continue to classify Brianna as an Administrative Exempt—after December 1, 2016—you would need to increase her salary up to the new minimum of at least $47,476 per year. This would result in your providing her with a 19% salary increase.
If the salary increase is not feasible, the other option would be to reclassify Brianna to a Non-Exempt. However, in doing so, any time Brianna works over 40 hours per week, she must be paid overtime wages at 1.5 times her regular rate of pay. In calculating the current $39,900 into an hourly rate, Brianna is currently earning 19.18 per hour. At 1.5 times her regular rate of pay, she would earn $28.77 per overtime hour. If she has generally worked a 50-hour workweek, you could then make an assumption that she would earn 10 hours of overtime per week. The cost for the additional overtime pay (if she is classified as a Non-Exempt) will exceed the cost of the salary increase needed to bring her up to the threshold to continue being classified as an Exempt. Additionally, if Brianna were to shift to a Non-Exempt position, she would be required to maintain a record of all time worked. In other words, she will have to “punch a clock”… Employees who have been accustomed to being salaried Exempts and having more flexibility with their work schedules may find the shift to a Non-Exempt to be very dissatisfying.
It will be important for you to “run the numbers” to determine how this significant change in regulations will affect your bottom line. For any questions you may have regarding these new regulations, or other HR issues, please contact us at 800-517-7129. We’re here to help!
Natalie Ivey, MBA, SPHR, SHRM-SCP
President & CEO
Results Performance Consulting, Inc.