Are you ready to implement the Department of Labor’s new overtime rules when they go into effect on Dec. 1, 2016?
Before you say “yes,” take a quick quiz:
- Do you believe you have only two options – increase pay levels for affected employees or convert them to hourly employees?
- Are you certain that your employees are properly classified now?
- Are you willing to risk thousands of dollars in unnecessary payroll expenses?
The DOL rules seem pretty simple on the surface. The main provisions raise the minimum salary that exempt employees must make to maintain their exempt status and increase the minimum salary for employees to be considered highly compensated.
Implementing the rules, however, is much more subtle than a cursory reading of them would indicate, and you have more options than you might think. Understanding those subtleties can save you thousands of dollars; ignoring them can cost you thousands.
We recently worked with a client that thought they had everything under control. After we examined the solutions they prepared for their five-member payroll, we were able to propose an alternative option that saved $16,000 a year. It’s easy to make mistakes if you aren’t aware of all the implications of the new rules and how the rules apply to your individual situation.
So what are the new rules?
The new rule has three main provisions:
- The minimum salary for standard employees to maintain their exempt status will increase from $23,660 ($455 per week) to $47,476 ($913 per week). The minimum salary for highly compensated employees to maintain their exempt status will increase from $100,000 to $134,004.
- The current rules do not allow for the inclusion of bonus or incentive payments in determining whether employees meet the minimum salary threshold. The new ruling will allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new minimum salary threshold, as long as the payments are made at least quarterly.
- The current rules have no provision for future escalation of the minimum salary threshold. The new ruling includes provisions whereby the minimum salary threshold will be updated every three years.
What Should You Do Next?
The HORNE team knows that this task can be daunting, so we broke the process down into three steps to help you take control:
- Identify Your Impact – Start by identifying employees who are currently classified as exempt but who will not qualify under the new ruling. Now might also be a good time to review the job duties and tasks that are required of every exempt employee because these requirements have not changed with the new rule. Ensure that all your exempt employees actually qualify for exempt status.
- Weigh the Solutions – Raising the salaries of affected employees may be the most straightforward solution to complying with the new rule, but it may not be the best solution. There are numerous options to consider related to compensation and possible staffing changes. Each solution has pros and cons, and you must determine what’s best for your business.
- Implement and Communicate – When you’ve decided the best strategy for your company, implementation is the next step. You will have a significant responsibility to communicate the change to your employees effectively. They may be concerned and resistant initially, and you can help make the transition smoother by involving your employees in the process as much as possible, as early as possible. There may also be process changes to consider – ignoring these could lead to issues once changes become effective.
If you need more information, you might find a recent HORNE publication, New Employee Exempt Rule: Substantial Changes on the Horizon, helpful as you make your plans. Of course, if you’d like to discuss your situation with our experienced team, feel free to give us a call.
More information on the Federal Labor & Standards Act (FLSA) is available here.
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