White Collar Exemptions: A Guide to the Proposed Rule ChangesPosted on October 20, 2015
Update: On November 22, a U.S. District ruled in favor of an injunction blocking the final overtime rules from being implemented on December 1, 2016. At this time, we are awaiting more information on updates to the rule and the final implementation date.
If you have implemented changes already, we recommend businesses not change any plans, pay structures, or policies that have been updated.
How many employees do you have that make under $47,476?
You have probably been hearing more and more about the Department of Labor’s (DOL) proposed overtime rule changes. We have, too. The DOL ended its comment period on September 4, and most sources seem to indicate a high likelihood that a final rule will be issued in late 2015 or very early 2016.
To help you stay in the know, Paycor has put together some highlights regarding the proposed rule, how the rule may affect you, and thoughts on actions you should be considering now.
Basics of the Proposed Rule Changes
Goal of the Changes
To increase the number of workers that are eligible for overtime pay by raising the minimum salary level for employees classified as exempt under the executive, administrative, professional, and highly compensated exemptions. (For easy reference, we will refer to these exempt employees as “white collar” employees.)
- The minimum salary level for the executive, administrative and professional exempt employees is $23,660 per year and the minimum salary for the highly compensated employees is $100,000 per year (“the Salaried Basis Test”).
- In order to be exempt, employees must perform certain types of duties (“the Duties Test”) in addition to being paid a set salary above the current minimum threshold.
- If an employee doesn’t meet both the Salaried Basis Test and the Duties Test, the employee can’t be exempt under the white collar exemptions rules.
Proposed New Law
- The minimum salary level for the executive, administrative, and professional exempt employees increases to $47,476 per year.
- The minimum salary level for the highly compensated exempt employees increases to $122,148 per year.
- An employee making less than the new minimum salaried level is eligible for overtime, regardless of whether the employee’s job duties meet the Duties Test.
- Around 5 million more workers would be eligible for overtime pay.
- The minimum salary level will automatically increase each year.
What You Should Know
- All of your employees that earn less than $47,476 will be affected by this rule change, regardless of the employees’ job title or job description.
- There may be additional changes to the Duties Test that an employee must meet in order to be exempt. We won’t know for sure until the final regulations are issued. If there are changes to the Duties Test, even more workers will likely have to be reclassified and treated as non-exempt.
- Your exempt employees who are currently earning less than $47,476 are the employees you need to focus on as you make plans for how you will comply with the new final overtime rule. It is this group of exempt employees who will either have to receive a raise or be reclassified as non-exempt.
What You Should Do
- Identify your exempt employees who earn less than $47,476 annually. You likely have an HR system that can easily produce such a report.
- Implement a time tracking system and figure out how many hours those employees are actually working each week.
Next, identify the employees who are working overtime hours. This is where you have a lot of work to do. Under the proposed changes, there are some options for handling these employees’ compensation.
- Increase salaries for these employees above the new threshold so they still remain exempt from overtime (assuming that the Duties Test is met).
Reclassify these employees as non-exempt and pay them on an hourly (or salary) basis, keeping in mind you must pay overtime when worked, even if the employee works the overtime hours without your permission.
- You can set hourly rates so that, if overtime is worked, employees will earn the same total amount as they now earn.
You can set hourly rates to approximate employees’ current pay, if they only worked 40 hours per week, eliminate overtime hours, and spread the hours among other existing lower paid workers or new part-time workers.
- Reclassify employees as non-exempt and pay them on a Fluctuating Work Week basis.
- Pay the employee a weekly wage for all hours worked, whether few or many.
For employees properly paid on a Fluctuating Work Week basis, overtime is only half (not one and one-half) the regular rate of pay.
Currently, the DOL takes the position that employees who receive incentive pay (certain bonuses and commissions) CANNOT be paid on a Fluctuating Work Week basis.
If you use the Fluctuating Work Week to compensate your employees, you should put that in writing so the employees understand how pay is handled.
Implement a policy of no unauthorized overtime. This may not work for all employers and, as outlined above, employees who violate this policy must still receive overtime pay.
Once you figure out how to adjust salaries in light of the overtime changes, you’ll have to make some other decisions to help you manage the new rule most effectively.
How to Track Time
You’re going to have to pay close attention to the hours your new non-exempt employees are working if these proposed changes are made law. Cloud-based time tracking systems make this a piece of cake, especially if you have remote workers.
How to Limit Off-Duty Work
If you have more employees entitled to overtime, you have to be meticulous about the hours they’re working. It may not seem like a big deal to have non-exempt employees checking email or returning phone calls in the evening hours, but it is a big deal if those employees aren’t receiving pay, including overtime (if applicable), for doing this.
How to Handle Short Absences
If you have more non-exempt employees, those doctors’ appointments, early departures and late arrivals matter more in terms of pay. Salaried, exempt employees can take an hour here or there without it affecting their pay. Non-exempt employees cannot, which makes tracking this type of time more important for those workers. As an employer, you are not required to compensate non-exempt employees for time spent out of the office on non-work-related matters.
How to Comfort Employees with Status Changes
It can be hard for employees to undergo a change in job title or status. Take care to speak to each employee that could be affected by classification changes. Help them understand that regardless of how they are paid, they still have an important role to play in your company.
Convinced now more than ever that you need a better way to track time? Check out our time and attendance software demo to see how Paycor can help you get ready for the Department of Labor’s changes.
- Avoid Misclassifying Your Employees
- ICYMI: U.S. Department of Labor Proposes Higher Overtime Threshold
This content is intended for educational purposes only and should not be considered legal advice.
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