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How To Prepare For The New Exemption Ruling

Part 2

3. Consider Options for Impacted Employees Raise income to meet new level — You may choose to raise an employee’s income to retain the exempt status, as long as they also meet the duties tests. This option is best for employees who have salaries close to the new salary level and who regularly work overtime. The salary minimum may include up to 10% in the form of non-discretionary payments. For example, employees earning a base pay of $42,728.40 plus at least 10% in commissions or bonuses paid on at least a quarterly base may qualify for exemption status under the new limits. If the non-discretionary payment in a given quarter does not add up to the required minimum, the employee must be paid overtime pay for any overtime hours worked throughout that quarter or receive a “catch-up” payment at the end of the quarter to make up the difference. Salaried non-exempt — You may choose to pay impacted employees as salaried, non-exempt. Employees would continue to earn an established salary, but be paid overtime pay for any hours worked over 40 in a week. This option is ideal for employees who work 40 hours or fewer in a typical workweek and rarely work overtime. Reclassify as hourly non-exempt — You may choose to re-classify employees below the salary limit to hourly non-exempt. Their converted rate of pay could be a division of their salary rate by 2,080 hours, or it could be lower to accommodate for overtime anticipated to be paid. Estimate average overtime to be earned and determine whether to reduce base pay to compensate for overtime to be paid. Determine whether you can limit or eliminate overtime hours. Evaluate workload, to determine whether some tasks can be re-assigned or eliminated to limit overtime. Determine whether hiring part-time employees to manage workload and limit overtime would be beneficial. Consider whether reclassifying employees as non-exempt might affect eligibility for certain employee benefits, such as paid time off accrual, holiday pay, etc. Also consider how reclassification may impact morale.

4. Review Policies and Processes Ensure you have systems in place to monitor and record non-exempt employees’ hours. There are no specific federal requirements for tracking and recording hours, as long as the method is complete and accurate. For example, employees who typically work a fixed schedule could be required to submit only exceptions to their regular schedule. Implement or update policies regarding unauthorized overtime work, meal and rest breaks, and travel time. Address working from home or otherwise away from the workplace, including checking emails and taking or making phone calls, as this is considered compensable time for non-exempt employees. If applicable, also consider travel policies for non-exempt employees, including how compensable time is defined and paid. Compliance & HR solutions providing what you need to know and do, when it’s needed. © 2016 HR Service, Inc.

5. Communicate the Changes Once all decisions have been made and policies and processes have been determined, notify employees of any changes that will impact them and when the changes will take effect. Be prepared to address employee concerns about the potential perceptions of demotion or loss of status, loss of flexibility or income potential, or other possible negative reactions. Communicate and have employees acknowledge any new policies or procedures associated with the changes.

6. Train Leaders and Supervisors Train leaders and supervisors on all policies and procedures associated with overtime rules, time tracking, and other associated issues. Address what constitutes compensable working time, disciplinary processes for unauthorized overtime, and ways to address complaints associated with these changes.

By Rhonda Hollier, HR Coach, HR Service, Inc.

Sources: U.S. Department of Labor Wage and Hour Division “New Overtime Rule Webinar Questions & Answers: May 26, 2016.” U.S. D.O.L. “Fact Sheet: Final Rule to Update the Regulations Defining and Delimiting the Exemption for Executive, Administrative, and Professional Employees”

HOW TO PREPARE FOR THE NEW EXEMPTION RULING

Part 1

By now you have likely heard of the Department of Labor’s new Final Rule on the annual salary minimum for exemption from overtime. The December 1, 2016 effective date gives employers approximately six months to assess the impact of the new salary limits; make decisions about what changes to make to ensure compliance; implement new policies, procedures and systems to support the new changes; communicate the changes to those who will be impacted; and train leaders how to manage the changes.

1. Establish Who Will Not Be Impacted Employees who are being paid on an hourly basis and paid overtime for hours worked over 40 per week will not be impacted. Certain professionals including outside sales employees, physicians, lawyers, judges, teachers and certain academic administrative personnel in educational institutions are not subject to the new salary limits. Certain retail employees paid on a commissioned basis will also not be impacted. There is no change to the annual salary limit for computer professionals who qualify for the DOL’s exemption for computer professionals, but the weekly limit will be raised to $913 per week. (See DOL Computer-Related Exemptions Fact Sheet.)

2. Determine Who Will Be Impacted Identify all current salaried, exempt employees who make less than $47,476 per year. The $47,476 minimum can include no more than 10% from nondiscretionary bonuses, incentive payments, and commissions that are paid at least quarterly. If you have employees who are not paid the same salary amount throughout the year, identify any who make less than $913 per week. Identify any employees who are currently making less than $134,004 and do NOT meet the full criteria for executive, administrative, professional, outside sales or computer-related exemptions. (See DOL Highly-Compensated Workers Exemption Fact Sheet.) Also review the duties of all employees currently classified as exempt, regardless of income, to ensure they meet the “duties tests” of exemption eligibility. While the duties tests for exemption eligibility did not change, now is a good time to reclassify exempt employees whose duties have changed or who have been misclassified. (See DOL Exemption Fact Sheet.)