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To be or not to be exempt: What we’ve learned

October 31, 2016

By Nancy Johnson, Director of Operations, HR Collaborative, LLC

Over the last several weeks, in our series “To Be or Not to Be Exempt” we’ve reviewed how the new FLSA rules issued by Department of Labor on May 18, 2016 has employers gearing up to be in compliance with the new regulations by December 1, 2016. Let’s take a moment to review the key takeaways we’ve learned throughout the series and make one final observation concerning employee benefit programs. 

  1. Exempt employees are not eligible for overtime pay and are commonly referred to as salaried.  Non-exempt employees must be paid overtime pay for hour worked in excess of 40 in a work week. Under the Fair Labor Standards Act, there are specific duties test that must be met in order to be classified as an exempt employee.  
  2. How an employee is classified as either exempt or non-exempt is not changing, but employers will want to make certain that they have their employees correctly classified. Now is a good time to double check your job descriptions and classifications.
  3. An employee’s role must pass one of the six “duties tests” in ordered to be classified as exempt. They duties tests are: Executive, Administrative, Professional, Computer, Outside Sales, and Highly Compensated.  
  4. The position must pay at the minimum salary threshold for the given duties test. These thresholds are increasing from $23,660 to $47,476. Only up to 10% of this income may come in the form of non-discretionary bonuses, incentive pay, or commissions, as long as that portion of the compensation is paid at least quarterly. In the event that an employee does not earn enough in bonuses and commissions to meet the full minimum salary requirement, a catch-up payment can be made by the employer once a quarter. The salary threshold will increase every three years.
  5. The new rule also increases the minimum salary threshold for the Highly Compensated Employee (HCE) exemption from $100,000 per year to $134,004 per year. The new rule sets the HCE threshold at the 90th percentile of all full-time salaried workers nationally. This number will also increase every three years.

We’ve also explored the impact this change in the regulation has on employers such as concerns that may arise involving workplace culture, employee perceptions, wage compression, and the impact on schedules and work flow. 

There is one more area that is important to consider: employee benefit programs. If your strategy is to increase salaries to become compliant, don’t forget to factor in additional costs in places like contributions to retirement savings, disability plan premiums, paid time off accruals, as well as life insurance premiums. If you reclassify any employees from exempt to non-exempt, be certain to examine any differences in employee benefit programs that your company offers. Some employers have different time off allotments for salaried and hourly employees, for instance. Employees making the switch likely won’t expect any changes to their time off plans or benefits. Now is a good time to revisit your benefit plans and time off policies and make sure they are equitable across your organization.   

There is certainly a lot to do before December 1 rolls around!  If you are feeling overwhelmed, know that there are HR service organizations ready to help. Don’t forget to check out SBAM’s online toolkit for everything FLSA!   

HR Collaborative is a business consulting firm specializing in strategic human resource management. We operate in partnership with our clients and as an extension of their HR department. We help organizations build their HR systems, offering assistance within the broad spectrum of Human Capital Management. Contact: 616.965.7860 or www.hrcollaborative.net

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