Salaried exempt? Exempt from what?
Some businesses truly understand the do’s and don’ts of the exempt classification. Hurray for them! Then there are those companies that understand many of the rules but are still at risk when controlling an exempt employee’s work hours, falling short when administering the standard duties tests, or failing to pay above the minimum salary amount. My last point is companies that don’t have a clue about the Internal Revenue Service (IRS) and the Fair Standards Labor Act (FLSA) regulations and think that they can pay anyone they choose as an exempt employee. Did you know setting standard working hours on an exempt employee is a violation and may force the employee to a non-exempt classification?
New IRS/FLSA rules take effect on December 1, 2016. Many organizations began preparing for these changes before the new rules were announced in May. Smaller organizations were able to wait and began working on implementation plans this summer. Still, others don’t have a clue and don’t even know they should be preparing for the higher wage requirements.
You may be asking what needs to be done before the deadline. Well, in simple terms, each current exempt position description should be reviewed and updated. The salary for each current exempt position should be evaluated to see if it meets the new minimum salary of $47,476 ($913 weekly). If it does, the position description should then be put through and pass the standard duties test for its specific classification. That was the easy part! What to do with the current exempt employees who will not be paid at the new minimum and/or can’t pass the duties test is going to prove to be the bigger issue. These employees will need to be reclassified as salaried non-exempt or non-exempt hourly and paid overtime for all hours worked over 40 hours. In most cases, the pay conversion from exempt to non-exempt is simple math.
Employers working exempt employees near the bottom of the current scale ($23,660) and working them over 50 hours a week could have significant budget issues. In addition, employers may also need to review and possibly rewrite policies, procedures and employee handbooks. Employers will also need to prepare how they will communicate these changes to the affected employees. This will be no easy task, as many will feel demoted and unappreciated. It may also expose the fact that some positions should never have been classified as exempt and some employees may be owed back pay for years of overtime. Based on my experience, you don’t want to get any of this wrong. If mistakes were made in the past it will be in the organization’s best interest to make any corrections as soon as possible to reduce and stop any overtime liability.
If you haven’t begun preparing, I would suggest doing so as soon as possible.
Doug Pepin, SHRM-CP
HR Business Consultant, Advise-HR LLC
Expertise: Organizational Development & Human Resources
Doug Pepin has worked as an HR executive for over 25 years, with companies in Stillwater, Hudson, New Richmond and White Bear Lake, and holds a Bachelors Degree in Business with emphasis on Human Resources.