The Department of Labor (DOL) has been mulling over an increase in the wage threshold amounts for determining whether an employee is exempt (salaried) or non-exempt (hourly and overtime eligible). The conversation about changing the wage threshold has been going on quite a while, was subject to a comment period, and it seems that the final rules could be enacted by late Spring, or early Summer.
Understanding Exempt vs. Non-Exempt
First, it’s really imperative that you understand the differences between an exempt and non-exempt employee as the rules currently stand. These rules are covered by the Fair Labor Standards Act (FLSA) and it’s an area where business owners often struggle. If you are not familiar with the difference between exempt and non-exempt, please click here.
Many have the misguided impression that they can just put a person on salary because they always work exactly 40 hours or the person has an advanced degree so therefore they qualify – but that isn’t necessarily the case. It’s the job a person has with you that dictates whether they are exempt or non-exempt. For-instance, if a degreed lawyer with an advanced degree is working as a paralegal, you might be tempted to call them exempt but they wouldn’t be, because the paralegal job does not qualify for exemption. Therefore, they’re non-exempt and are eligible
for overtime. In most States, overtime is paid at 1.5 times the base hourly rate and owed when an employee works more than 40 hours per week in any one work week (though this can vary by State).
What’s Changing
There are actually a couple of proposed changes, but the one that we expect the employers we work with to wrestle with most is the new wage threshold. At this point in time, assuming that other exemption requirements are met (and please, please, please familiarize yourself with the rules at the link above), an employee can be considered exempt (or salaried) if they are paid $455 per week on a salary basis or just $23,660 annually. The current proposal, when enacted, will raise this amount to $970 per week or $50,440 annually. And this is where you need to pay attention. Even if you currently have employees on staff that have positions that are considered exempt or salaried under all other provisions of the regulations, if they are making less than $50,440 annually they can no longer be considered exempt once the new regulations go into effect.
What Does This Mean to You?
If you’re currently employing exempt or salaried employees, and they are making less than $50,440 per year, then as of the date the regulations change they will be considered non-exempt and will become eligible for overtime. Right now, in order to be prepared, you should be determining:
a) Who on your staff falls into this category?
b) What the ramifications to your payroll budget will be if employees are now non-exempt?
c) What timekeeping measures will you put in place – because you have an obligation to track non-exempt employees’ working hours?
d) And how will you communicate these changes to your employees to let them know about this change in their status?
Think of it this way, if someone is routinely working 50 hours a week as an exempt employee, and now they’re hourly, you’re looking at an increase in pay of 37.5% (40 hours + (10hours x 1.5 which is the overtime rate = 15) = for a total of 55 hours. A 37.5% increase – most small businesses I know won’t be able to absorb that without some forethought.
Last but not least, if you’re a smart cookie, this might be time to seize the moment and determine whether you have your employees classified properly in the first place – all too often when we visit with a prospective client, they truly don’t have their ducks in a row when it comes to FLSA classification.
Please Pay Attention – You Worry Us
It’s too hard to start and run a business to put it on the line by running afoul of the DOL for something like this. For help understanding how these pending changes to the overtime exemption rules might affect you, or to double check your current classifications, please feel free to call us at 913.940.5391 or email us at info@hr-haven.com. We’ll help set you straight.