What Do the Changes Mean and How Do they Impact Your Business?
On May 17, 2016, the U.S. Department of Labor (DOL) announced changes to the existing overtime and minimum wage exemptions. As you are aware, some employees are exempt from minimum wage and overtime pay – these employees are appropriately identified as exempt employees and differ from other employees, appropriately called non-exempt, who are not exempt from the minimum wage and overtime pay rules. The Fair Labor Standards Act (FLSA) outlines the criteria under which an employee qualifies for exempt status. The DOL is enacting changes (referred to as the final rule) to these criteria starting December 1, 2016.
Under the current rules, employees who qualify for exempt status do so by clearing two hurdles: 1) the duties test and 2) the salary test. The final rule changes the height of the hurdle for the salary test but does not change the duties test.
The current hurdle for the salary test is that the employee must be compensated on a salary basis at a rate not less than $455 per week ($23,660 per year). As of December 1, 2016, the salary basis increases to $913 per week ($47,476 per year).
So, how does this impact your business?
- Employees that are currently non-exempt are still non-exempt
- Employees (with few exceptions) need to pass both the duties and salary test to be exempt
- Employees that pass the current salary hurdle may need either:
o An adjustment to their status (OR)
o An adjustment to their salary
For example, you employ Dennis as a lab technician. Dennis currently earns $42,000 per year and regularly puts in 50 hours per week in the lab. You do not currently pay overtime for anything over 40 hours per week (8 hours per day in California) because he is exempt from overtime pay — he meets the following requirements: he is compensated at a rate not less than $455 per week; his primary duty requires advanced knowledge; the advanced knowledge is in the field of science; and the advanced knowledge was acquired by a prolonged course of specialized intellectual instruction (under the Learned Professional Exemption).
As of December 1, 2016, Dennis would no longer clear the salary hurdle. So, you can do the following: A) Increase Dennis’s salary to $47,476 and keep him as an exempt employee, or B) make him a non-exempt employee and pay him $20.19 per hour ($42,000 divided by 2,080 hours per year) for the first 40 hours per week and $30.28 (1.5 x $20.19) per hour for any hour over 40 per week (or 8 per day in California), C) continue to pay Dennis $20.19 per hour and limit his lab time to 40 hours.
CONTACT CHRS FOR MORE INFORMATION ABOUT HOW THE NEW RULES IMPACT YOUR BUSINESS AND HOW TO COMPLY!
Authored by Thomas More Smith Ph.D., SHRM-SCP