Exempts are getting a raise: Here’s what you should do now — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily
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Exempts are getting a raise: Here’s what you should do now

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in Office Management,Payroll Management

Only Congress can raise the federal minimum wage. But the Department of Labor’s (DOL) ­proposed regulations raising the salary limit exempt employees must earn, from the current $455 a week, to a projected $970 a week in 2016, accomplishes almost the same thing, just by a different route: increasing the number of overtime-eligible employees. These proposed regs aren’t complicated, so the DOL can probably get them out in final form quickly. Don’t wait for the final regs; you need to develop a compliance strategy now.

Step #1: Identify your employees. The employees who will be impacted by the salary bump are assistant and middle managers who earn between $30,000 and $40,000.

Don’t stop there: You should also look at employees who earn $50,000 and up, since the regs also propose annual adjustments to the salary level.

Step #2: Determine your exposure to overtime liability. Not every exempt pulls down lots of overtime hours a week, so it’s crucial to identify how many hours a week exempt employees work. Retail and restaurant employers need to be especially mindful of this step.

KEEP IT QUIET: Since they’re paid a guaranteed weekly salary, exempts don’t normally submit weekly time records.

Snag: You will have a dilemma in trying to figure out their work hours. Don’t send them questionnaires.

Reason: You’ll tip them off. In addition, questionnaires are subject to disclosure in a lawsuit. Instead, talk to their managers or use substitute measures for working time.

Examples: Login and logoff times or security swipes.

Step #3: Perform a cost-benefit analysis. It may pay to give annual raises to the handful of exempts who don’t normally work a lot of overtime and who are on the $50k salary cusp. But for the others, you will have to compare the cost of giving them annual raises to the cost of reclassifying them and paying them overtime.

Key: Setting hourly pay rates for those who will be reclassified.

Option: You may lower their base rate of pay, but make them whole by guaranteeing them overtime and bonuses.

Step #4: Communicate the reclassification. Inevitably, some employees will be reclassified as nonexempt. Be prepared to answer two basic ­questions:

1.  Where is my overtime pay for the last three years? Reclassifications always have employees looking to the past.

Recommended: Be nice. Tell them that their reclassification was a result of a change in the regulations and that the company strives to maintain compliance with the law.

2. How will my pay change? Reclassification means a loss of status. As a balm, you should point out that they’re now eligible for overtime.

Recommended: Use side-by-side charts that com­­pare salary.

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