By MeLissa Crockett
The new ruling requires employers to pay exempt executive, administrative and some professional employees no less than $913 per week equivalent to $47,476 annually. This ruling goes into effect on December 1, 2016. Employers will be forced to choose between reclassifying an employee as nonexempt (eligible for overtime) or increasing an employee’s salary to meet the new minimum salary requirements. The DOL did not make changes to the Standard Duties Test and allows up to 10% of standard salary level to come from non-discretionary bonuses, incentive payments, and commissions, paid at least quarterly. Employers will be allowed to make catch-up payments within one pay period at the end of a quarter if the salary paid plus the nondiscretionary bonuses, incentive payments and commissions paid does not equal the minimum salary level of $931 per week. Employers will not be allowed to credit other benefits such as discretionary bonuses, payments for medical, disability, life insurance, contributions to retirement plans or other fringe benefits toward the minimum salary requirement.
Highly Compensated Employees (HCE) effective December 1, 2016 must earn a total annual compensation of $134,004 or more. The HCE test does not allow employers to credit nondiscretionary bonuses, incentive payments and commissions towards the minimum salary requirement but it can count towards the annual compensation. HCEs must receive their full minimum salary each week in order to satisfy the exemption requirement.
Future automatic updates to these thresholds will occur every three years, beginning on January 1, 2020.
What to do between now and December 1, 2016?
- Review how each employee is classified, exempt vs. non-exempt, to ensure exempt employees are properly classified and meet the Standard Duties Test.
- Review current salary-exempt employees and identify those whose salary falls below the $47,476 threshold.
- Determine how many hours per week the current Salary-Exempt employees are working. If these individuals work more than 40 hours per week, decide whether their job requires more than 40 hours per week or if the hours can be reduced to 40 or less to avoid the increase.
- If the job performed requires more than 40 hours per week on a regular basis, employers will need to decide whether to increase the salary to the required $47,476 or convert the position to a non-exempt pay plan and pay the employees overtime for hours worked in excess of 40 hours per week with an hourly rate at time and one-half.
- Formulate a plan for communicating needed changes to employees affected by the new ruling.