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Five strategies for complying with the new salary level test

June 8, 2016

Article courtesy of SBAM Approved Partner ASE
Author: Michael Burns

The change in the white-collar salary level test from $455 per week to $913 per week (as well as the highly compensated employee test) is expected to affect an estimated 4.2 million workers. This will send many employers into scramble mode to comply with the new standard by the deadline date of November 30, 2016. To help, the Department of Labor (DOL) has published guidance for private-sector employers to implement changes to their affected positions.
 
First, the Guidance paper reminds employers of several basic facts: 

  • Never rely on job titles to determine exempt status. The white collar exemption tests start with meeting the Salary Basis test, the Salary Level test (now changed) and the Duties test. Information on the Duties test can be obtained from the Wage and Hour web-page (www.dol.gov/whd).
  • Just because an employee is paid a salary does not necessarily make the position exempt. Salaried workers may be eligible for overtime. 
  • The salary level is not a minimum wage requirement. Employers are not required to pay an employee the salary level specified in the regulations unless of course the employer is claiming the white collar exemption.

Then the Guidance suggests five options employers can consider using to achieve compliance with the new regulations: 

  1. Leave the position alone, i.e., do not raise the salary to meet the new salary-level test. The position will then become non-exempt. If the position is then allowed or required to work over 40 hours per week, the employee will have to be paid overtime. Or alternatively, require the employee to stop work once 40 hours have been worked in the week. In either case, you will need to record and maintain records of hours worked.

  2. Raise the position’s salary to maintain the white collar exemption. If the position was exempt to start with but paid less than $913 per week ($47,476 per year) you can increase the position’s salary to meet the new salary test level.

  3. Of course there are positions that are exempt and also are paid more than the $47,476 per year. Nothing need be done to those positions’ salary levels, and they do not have to be paid overtime. But if you have other positions that were paid less than that amount, and you have raised the salaries of those positions to maintain the exemption, you may create pay inequities between certain positions that you will have to address in order to maintain the distance between those salaries called for by your overall salary structure.

  4. Reorganize workloads, adjust schedules or spread out work hours to ensure the newly non-exempt employees do not work more than 40 hours per week. Perhaps, the guidance suggests, you will need to hire new employees to work the additional hours no longer worked by the formerly exempt employees. 

  5. Adjust wages downward. This is a different adjustment than just increasing the salary level as stated above. The employer can “adjust the amount an employee’s earning to reallocate it between regular wages and overtime so that the total amount paid to the employee remains largely the same.” In other words, you can lower the affected employee’s base salary so that, with the overtime hours that employee is expected to work, the total amount paid will be largely the same as it was before the new regulation came out. Of course, you cannot reduce an employee’s hourly wage below the applicable federal, state or local minimum wage. And you may not move the wages up and down each workweek to manipulate the minimum wage. Hours worked must still be recorded too.
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