On May 18, 2016, the Department of Labor (DOL) released its final ruling revising the overtime exemption regulations of the Fair Labor Standards Act (FLSA). These changes increase the minimum salary threshold for employees to be considered exempt from overtime. We say “considered” because salary is not the only criteria that a job description must meet to be classified as exempt, but it is one of the most obvious and the biggest change to the FLSA.
The current salary threshold is $455 per week, or $23,660 per year. As of December 1, 2016, that salary threshold increases to $913 per week, or $47,476 per year. That’s a significant increase and will require some advance planning to ensure compliance.
The two simplest options to be compliant are (A) raise salaries for the employees in question to meet the new threshold or (B) re-classify the employees in question to non-exempt (hourly) to make them eligible for overtime.
If you choose option A – to raise salaries for the employees in question to meet the new threshold – there are a few other things to consider:
- This option is best for employees who are already close to the new threshold and who regularly work more than 40 hours per week.
- If an employee has a base salary and also receives non-discretionary bonuses, incentives or commissions at least quarterly, that compensation can satisfy up to 10% of minimum salary.
- The job duties should be reviewed to make sure this position is truly an exempt position. The DOL has very specific criteria that you can review in detail here.
If you choose option B – to re-classify the employees in question to non-exempt (hourly) to make them eligible for overtime – it’s best to schedule a time to speak to the employee in advance of the change to explain why they are being re-classified and how this will impact them. This could involve a number of additional changes – how time off is accrued, whether timesheets need to be submitted, limiting “work” after hours (like checking email or returning calls) because that now becomes compensable time and they must be paid for it. Additionally, some employees may see this as a demotion because “salary” is sometimes perceived as more prestigious than hourly. Stressing to them that this is not a demotion but a way to protect their interests and ensure they are being paid for their hard work.
Just to add to the fun, the DOL is going to review and make adjustments to this threshold every three years. Whichever plan you implement now should be sustainable for future increases as well.
There are many things to consider when determining the best option for your business, and SmartBooks is here to help. We can review your current staff, salary levels, and job duties; make recommendation; provide resources; and assist with implementation of the changes necessary to be compliant by the December 1, 2016 deadline.