BREAKING NEWS: New Exemption Rules Finalized (Exempt Vs. Non Exempt)

Exempt

– Sarah Zasso, SHRM-SCP, SPHR

 

It’s finally here.

Today, the U.S. Department of Labor (DOL) released the revised regulations affecting overtime exemptions under the Fair Labor Standards Act (FLSA).  The final rules are scheduled to be published on May 23, 2016.  And YES, this affects your company, regardless of size.

Basics:
Employees are generally classified as exempt or non-exempt.  An exempt employee is salaried and is exempt from overtime (meaning if they work more than 40 hours per week, they receive the same salary and vice versa).  A non-exempt employee is generally hourly and is entitled to overtime for hours worked over 40 at 1.5x’s their regular rate (42 hours=40 at regular rate, 2 at 1.5x’s regular rate).  To qualify for exempt, the position must satisfy 2 tests: Salary and Job Duties.  The current salary threshold is $455/week or $23,660/year.

What’s changed?

  • The minimum salary threshold is increasing to $913/week or $47,476/year (up from $455/week or $23,660/year). DOL says that this figure is set at the 40th percentile of data representing what it calls “earnings of full-time salaried workers” in the lowest-wage Census region (currently the South).
  • This amount will now be “updated” every three years (meaning that it will likely increase with each “update”), beginning on January 1, 2020. DOL will announce these changes 150 days in advance.
  • Employers will be able to satisfy up to 10% of this new threshold through non-discretionary bonuses and other incentive payments, including commissions, provided that the payments are made at least quarterly. This crediting will not be permitted as to the salaries paid to employees treated as exempt “highly compensated” ones.
  • The total-annual-compensation threshold for the “highly compensated employee” exemption will increase from $100,000 to $134,004 (which will also be “updated” every three years). DOL says that this figure is set at the 90th percentile of data representing what it calls “earnings of full-time salaried workers” nationally.

When does this take effect?
All employees must be correctly classified by December 1, 2016.

What do I do now?

  • Review your active employee census and determine if those that are currently exempt meet the new salary requirements.
  • Determine which employees do not currently meet the salary threshold.
  • Create a plan to adjust status to ensure your employee classifications are FLSA compliant.
  • Create a plan of communication to affected employees (remember, many employees look as exempt classification as a higher “status” within the organization.  It’s critical that this is communicated to them in a way that does not unnecessarily reduce morale.)

Consider This:
When you are creating your approach to adjusting exempt status, there are a myriad of things to consider…

  • Will this affect PTO status?
  • Will this affect benefits status?
  • If an exempt employee is now exempt, do I need to ask them to return company equipment (cell phone, etc)?
  • How do we manage workload?
  • Is there discrimination risk with our strategy?

Note:  Job titles do NOT determine exempt status.  In order to qualify as exempt, the job duties and salary requirements must both be met.  The job duties test varies and has not had any announced changes.

There is no “one size fits all” solution: 
This is a very new regulation, we have yet to see the effects and consequences, and there is no clear guidance on how to implement the changes as of yet. Each employer must first collect data, analyze and evaluate all aspects and consequences before implementing changes.  What may work for one company or industry may not work for another. 

If you have any questions about these new regulations, how they might affect your organization, or how to implement the changes, please contact me at [email protected] or 843-691-9092.  Sabeza HR is “Your Human Resources Solution.”

 

 

Sarah Zasso is the Owner/Principal HR Consultant of Sabeza HR (www.SabezaHR.com), a Human Resources Consulting and Recruiting company.  Sarah has almost 15 years of Human Resources experience, achieved both the SHRM-SCP and SPHR certifications, earned a Bachelor’s degree in Organizational Leadership and Communication, and currently serves on the Board of the Coastal Organization of Human Resources.  If you have any questions, please do not hesitate to contact Sarah at [email protected].  

This article is for general information purposes only.  I am not an attorney; accordingly, the information presented is not legal advice, and is not to be acted on as such.

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