How You Pay Your Exempt Employees Will Be Changing

At the end of June this year, the U.S. Department of Labor (DOL) announced that it is issuing a proposed rule to increase the minimum salary requirements under the Fair Labor Standards Act for exempt “white collar” employees (executive, administrative and professional).  A draft version can be found at: http://www.dol.gov/whd/overtime/NPRM2015/OT-NPRM.pdf.

The final proposed rule will be issued in the Federal Register and will provide a comment period for the public, so nothing is final as of yet.

The proposed rule seeks comments on the following main proposed changes:

1. Set the minimum salary level to qualify for the white collar exemptions at 40 percent of the national weekly earnings for full-time salaried employees ($921 per week/$47,892 annually but expected to increase to $970 a week/$50,440 annually in 2016);
2. Increase the minimum salary for Highly Compensated Employees to 90 percent of the national weekly earnings of full-time salaried workers ($122,148 annually); and
3. Establish a mechanism for automatically updating the minimum salary to meet the exemption on a yearly basis. While the proposed rule sets forth different types of mechanisms for calculating the automatic update which mechanism will be utilized is not identified.

The rule will not go into effect until the comment period has ended. However, employers must begin contemplating how this is going to affect your current workforce. The good news for operators is this does not affect how you pay your salaried route drivers who are covered under the Motor Carrier Exemption since their pay (except for the minimum wage requirement) is set by the Department of Transportation. This rule is going to affect your salaried management and administrative employees.

Further, DOL requests public comment on topics such as, whether to allow non-discretionary, incentive bonuses and/or commissions to satisfy 10 percent of the standard salary requirement and how often these bonuses/commissions must be paid, and whether changes should be made to the duties test for the white collar exemptions like whether employees should be required to spend a minimum amount of time performing work that is their primary duty for qualifying for the exemption and should the DOL follow the California state model and require 50 percent of an employee’s time be spent performing the employee’s exempt primary duty?

Employers, Start Your Analysis Now:

1. How many of your current employees will be affected by this new rule?
2. Are you able to sustain salary increases for all those employees?
3. Will more positions be considered non-exempt now requiring overtime pay?
4. Tighten up policies regarding working overtime and working with management to limit the number of overtime hours worked for non-exempt employees.
5. Review handbooks and policies regarding exempt and non-exempt status, including applicable benefits.

Employer Options Regarding These Proposed DOL Changes:

1. Increase the employee’s salary to the proposed level in the new regulations so they continue to meet the exemption;
2. No change to salary but pay the required overtime;
3. Reduce the employee’s salary or change the employee to hourly at a lower rate so the total earnings do not change after overtime is paid;
4. Eliminate the employee working any overtime hours; or
5. Some combination of these options.

The more preparation you do up front, the less of a burden you’ll feel when the proposed regulation go live. As always, work with your legal counsel to determine compliance. 

Heather A. Bailey, Esq., a partner with SmithAmundsen LLC and a National Automatic Merchandising Association Knowledge Source Partner for over a decade, focuses her practice on labor and employment law issues for employers. Heather may be contacted directly at: 150 N. Michigan Avenue, Suite 3300, Chicago, IL 60601; Direct Dial: 312.894.3266, Email: [email protected].