Major Changes to Exempt Status under the FLSA
The Department of Labor (DOL) has made some pervasive changes to the Fair Labor Standards Act (FLSA) which will affect the minimum salary requirement for employees to be considered Exempt from overtime.
As of December 1, 2016 the DOL has raised the minimum salary for administrative, professional, and executive positions from $23,660 to $47,476 to be qualified for Exempt status under the FLSA’s minimum wage and overtime requirements. Highly Compensated Employees must be paid a minimum of $134,004 per year. This applies to all employers no matter how small.
In addition, the Department of Labor will adjust this base salary for administrative, professional, executive, and highly compensated employees. Also, there are still no salary level requirements for outside sales, teachers, doctors and lawyers.
How can you comply with the new rules?
Option #1 Raise currently exempt employees’ salaries:
On December 1, 2016, you can raise the salaries of your Exempt employees’ salaries to $47,476, or $134,004 if highly compensated, if they currently make less than this amount. You may use non-discretionary bonuses, incentive payments, and commissions for up to 10% of this amount as long as these payments are made on a quarterly basis.
Option #2 Reclassify currently exempt employees to non-exempt:
If your exempt employees are not paid the minimum salary required on December 1, 2016, you can reclassify them as Non-Exempt. This change requires that they will now have to track their hours worked on a time-sheet, electronically, or some other manner due to the fact they must be paid overtime if they work more than 40 hours per week.
How can this change be good for employers?
The change in the minimum salary for Exempt status will affect all employers’ payroll. However, it is an opportunity for employers to re-evaluate each of their job descriptions to determine if the positions are classified correctly. In some cases, employers may find that certain positions should be restructured or reclassified. This analysis should be done as soon as possible to be prepared for the December 1st deadline. Then, identify employees who are affected by the change. Also, review your overtime policy and timekeeping practices.
Plan a way to communicate with the impacted employees that will not negatively reflect on you as the employer. Tell them why it is happening and how it will change how they work. If they are being reclassified, explain how to track their hours worked and emphasize the importance of not working more than 40 hours in a week. Remind them of your policy that any overtime must be pre-approved by a manager or supervisor. Identify who will be their main resource if they have questions.
Some employees may have difficulty accepting the change. Some will be receiving raises and others will be reclassified. There is a certain unofficial status in being an Exempt employee. If an employee is reclassified or not receiving a raise like his or her colleagues, this may be construed as a punishment. So make sure that you are ready to answer difficult questions, especially related to pay and status in the organization.
Written by: Kerry Rieder-McLaughlin, Human Resources Consultant
If you have any questions, contact the Law Offices of McLaughlin & Associates, P.C. at (630) 230-8434.
NOTE: This publication should not be regarded as legal advice or legal opinion. The content is intended for general informational purposes only. If you have any concerns regarding anything in this publication you may contact your own attorney, CPA, or our law office at 630-230-8434, website www.ma-lawpc.com.
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