The United States Department of Labor announced in May the upcoming changes to the white collar exemption salary threshold which is set to take effect 12/1/2016. The former white collar exemption for Executive, Administrative and Professional employees who were exempt from overtime was $455/week ($23,660/year). The new salary exemption level will be set for $913/week ($47,476/year). The highly compensated threshold will be set at $134,004/year from the old rate of $100,000/year.
This update comes with several options to comply:
1) Increase the employees compensation from $455/week to $913/week (or move from $100,000 to $134,004/year).
2) Move the employee from salary exempt to salary non-exempt which would entitle the employee to time and one half for all hours worked over 40.
3) Move the employee from salary exempt to hourly non-exempt and pay employee time and one half for all hours worked over 40.
4) With options 2 and 3, the employer can also look for ways to spread workload or hire additional assistance as to mitigate overtime costs.
This is a short list which the department of labor recommends. Of course, the employer can also make the employee non-exempt and pay them a lower hourly rate than they’re accustomed to getting so as to ensure the employees yearly total does not go over their previous earnings. This is perfectly legal as long as you pay the employee at least the federal or state minimum wage as well as time and one half for all hours worked over 40.
All employers should ensure both the salary basis and salary level tests are spot on, but the employer should also ensure the employee meets the salary duties test for the applicable exemption. Failure to meet all three criteria will only open up the employer to possible litigation by employees or the Department of Labor.
The following types of employers are subject to the FLSA:
1) Employers who earn $500,000 or more in annual revenues per year.
2) Employers who have at least 2 employees.
3) Employers who affect interstate commerce. This could be entities which work on items or receive items which cross state lines. Make phone calls, mail letters across as well as handle billing receipts for business over state lines.
Blue Collar, Agricultural, Transportation, Military, Unpaid Volunteers, Self-Employed, Religious Workers and federal employees are not protected by the Fair Labor Standards Act.
The most important thing to do if your organization has not done so is to evaluate all exempt employees which will be affected by this new overtime law and determine how many hours they’re working. The employer can then determine if it would be worth their time to either make them non-exempt or increase their salary to the new level. The employer should draft a new offer letter with the applicable pay rate and have the employee sign off on both the new offer letter and the attendance/timekeeping policies. All of these documents will ensure the employer takes every precaution to prevent non-compliance as well as ensure employees are clear on company expectations. The employer should also provide tax forms as well as 401K/ESPP documents in case the employee contributes on a percentage basis and needs to make changes.
Best of luck to you all!