Exempts Are Getting a Raise.. What Does That Mean?

In 2016, the Department of Labor’s (DOL) is proposing to raise the current salary limit for exempt employees from $455 a week to $970 a week.   Because Congress is the only one that can raise the federal minimum wage, the DOL is effectively circumventing them by increasing the number of employees that are eligible to receive overtime pay.

While most bills that move through government are slow to progress, this one isn’t too complicated, so it’s expected that the DOL will be able to push this one through pretty quickly.  Because of this, it’s important that you start assessing the impact to your company now so that you can stay compliant with as little disruption to your day-to-day operations as possible.

Start by identifying your employees

In most companies, the employees that will be affected by this raise are going to be assistant and middle managers that are earning between $30k and $40 a year.  Part of the regulations will impact annual salary adjustments as well though, so you need to look at your employees that are making over $50k as well.

So start getting a list together of the exempt employees in your company that are making those wages.

Next, you need to make sure you’re getting clock times

Because these employees are not getting paid for overtime worked, some employers aren’t as diligent about making sure they have a record of the actual time the employee worked.  You should be clocking time anyway since you are legally obligated to ensure that they receive at least minimum wage for their time worked, and that means you have to know how many hours they work.

However, if you haven’t been clocking time, now’s the time to start!  If you start now, you can avoid having to issue employee questionnaires about their hours worked (which can be held against you in court).

Annual Raise or lower pay?

It may make sense for some employees that are close to the new threshold anyway to just increase their pay so that they still qualify for exempt status after the change.  For other employees, you may need to consider actually lowering their base rate of pay.

In those situations, you’ll need to determine a rate that allows them to make the same as before when hourly wage, overtime, and bonuses are figured in.

Be prepared to explain it to employees

Some employees are inevitably going to be reclassified as non-exempt when the change goes into effect.  They will have questions about this… such as why they haven’t received overtime pay in the past and what the change means for their pay going forward.

You need to be prepared to answer these questions in a way that leaves them confident they will still be able to put food on the table and is easy to understand.