Regular readers of my blog have seen numerous articles over the past year claiming the new overtime rules were coming. When the rules were delayed time and again, I'm sure I sounded a bit like Chicken Little - they really are coming!
Well now they're here and we know what is expected. The DOL eased up a bit on the salary test minimum from what they originally proposed. The number is now set at $47,476 annually and will go up every three years. They've also given us until December 1 to become compliant.
What this means for your organization is that, if you haven't already, now is the time to identify everyone that you pay on a salary basis rather than hourly who earns less than $47,476 annually. Then you need to develop and implement a compensation strategy for each of them. Here are a few options:
1. Raise them to the new minimum. If they're pretty close to that level now, the easiest solution may be to give them a raise and keep them exempt. But remember, they must meet the salary test and the duties test. The DOL might still consider them misclassified based on their duties, so review this as well.
2. Convert them to hourly. This may be well-received by some employees who will be happy to become eligible for overtime compensation, but may be poorly-received by others who will see it as a demotion.
3. See if salaried non-exempt or fluctuating workweek overtime will work in your situation. For some workers whose workload is heavy some weeks and light other weeks, a salaried non-exempt or fluctuating workweek structure may be a viable lower cost alternative. This may also work for employees who rarely work more than 40 hours in a week. The key here is that the employee must "win" sometimes and the employer "win" sometimes. You can't pay the lower overtime rate one week and then dock the employee for leaving early the next week. This approach will not work in situations where employees regularly and consistently work overtime or in states where it is illegal.
There are also some morale and engagement issues to consider before executing your strategy:
1. Employees moving from salaried to hourly who see this as a demotion. Hold meaningful conversations with these folks to help them understand why you're making this change, what it means to them in terms of tracking their time, and what your expectations are with regard to their working extra hours. Explain that this is not a change you would have made if not for the new regulations.
2. Employees who have worked hard to get to a $48,000 salary level only to have entry level people in their same job category now starting at $47,500. This is a case-by-case situation that organizations need to address. In many situations it's probably going to make sense to adjust compensation for these folks as well. The costs of allowing those employees to drift into a disengaged state or leave your organization altogether are probably greater than the cost of making them happy.
3. Understand the role of bonuses and commissions in achieving the minimum salary threshold. In some cases up to 10% of the $47,476 can be achieved through bonuses and commissions so long as they are performance based and paid at least quarterly.
Contact The Davidson Group if you'd like some assistance analyzing and developing strategies for your particular situation.
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