The Wage and Hour Proposed Changes May Have Drastic Consequences to Your Business Model
In July of last year, the Wage and Hour Division of the Department of Labor issued proposed changes to the Salary Level needed to qualify as an exempt employee.
For those who are unfamiliar with the term exempt, it means positions that are exempt from being paid overtime pay. These positions are also referred to as salaried positions.
The current minimum salary level is $455 a week or $23,660 per year. The proposal calls for an increase to the minimum pay of $970 a week or $50,440 a year. This is a HUGE increase. If this minimum salary level is included in the final regulations, it will mean that current exempt or salaried employees who make less than $970 a week will have to become hourly employees and be eligible for time and a half for all working hours over 40 in a work week.
At this point, we are still waiting for the final regulations to be released. So this is not yet cast in stone. However, if you have not started planning for the worst, you better get started,
A few weeks ago, the final regulations were submitted to the Office of Management and Budget (OMB). The significance of this is the OMB usually takes about six weeks to review the regulations before they are issued to the business world.
Some things to know
Every business involved in interstate commerce must comply. Also know that a minuscule number of companies are not involved in interstate commerce, so chances are your organization is a covered entity.
The Wage and Hour Division estimates that 70% of companies in the country are NOT in compliance with the current regulations, let alone the proposed regulations.
Under Wage and Hour guidelines, every week stands alone. This means you cannot average work hours of an individual employee over a two week pay period.
To qualify as an exempt or salaried position, the duties of the job must fall into one of the five "White Collar Exemption." If the job does not pass the "duties test", the position had to be hourly, regardless of the amount of money the employee working in the position makes.
What Do I Do Now?
Look at the makeup of your current workforce to determine the exempt employees who are currently earning less than $970 a week.
Tell these employees about the proposed changes to the wage and hour guidelines.
Ask them to start tracking their hours on a daily basis by writing down their starting and ending times.
Determine the average hours these employees work per week over a period of 6 to 8 weeks.
Determine their hourly rate by dividing their salary by the average hours worked. Then compute their overtime rate by multiplying the average hourly rate by 1.5 and again by the average hourly rate to arrive at the gross pay for each individual potentially affected by the proposed changes.
Determine if your business can afford to pay this. If not, determine what changes must be made to keep your labor costs in line.
Things to think about
Employees who are exempt typically do not keep track of their hours. If their status changed to hourly, they will be required to clock in when they arrive to work, clock out for lunch, clock back in when returning from lunch and clock out when leaving work.
If you reduce the hourly pay of an exempt employee to account for overtime hours worked, be careful how this will affect their pay for holidays, sick time and vacation.
Additionally, paid time off is typically not considered hours worked when computing overtime. So reducing the hourly rate, may have a negative effect on the employee's earnings during holiday weeks or when the employee takes time off for sick or vacation.
I know this is a confusing mess. But it is the law and you can either live by it or pay the potential consequences. And the consequences can be huge. By misclassifying employees as exempt, you may have to pay back overtime for the last two years – including to those individuals who are no longer employed.
The best advice is to prepare for the worst, stay in compliance and contact an expert in the field.
The Required Disclaimer
The McKenzie Mailer is for informational purposes only and does not constitute legal advice. Before implementing any action on this subject, contact HRG or another
expert in the field.