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Exempts are Getting a Raise: Here's What You Should Do Now

The new overtime rules: How to comply, how to prepare
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Human Resources

Exempts are getting a raise: Here's what you should do now

Only Congress can raise the federal minimum wage. But the Department of Labor's (DOL) proposed regulations raising the salary limit exempt employees must earn, from the current $455 a week, to a projected $970 a week in 2016, accomplishes almost the same thing, just by a different route: increasing the number of overtime-eligible employees.

These proposed regs aren't complicated, so the DOL can probably get them out in final form quickly. But don't wait for the final regs; you need to develop a compliance strategy now.

Will your organization be ready to comply? Attorney Anniken Davenport has a clear explanation of these new rules, plus practical advice on how your organization should respond and prepare. The New Overtime Rules: How to Comply, How to Prepare.

Step #1: Identify your employees. The employees who will be impacted by the salary bump are assistant and middle managers who earn between $30,000 and $40,000.

Don't stop there: You should also look at employees who earn $50,000 and up, since the regs also propose annual adjustments to the salary level.

Step #2: Determine your exposure to overtime liability. Not every exempt pulls down lots of overtime hours a week, so it's crucial to identify how many hours a week exempt employees work. Retail and restaurant employers need to be especially mindful of this step.

KEEP IT QUIET: Since they're paid a guaranteed weekly salary, exempts don't normally submit weekly time records.

Snag: You will have a dilemma in trying to figure out their work hours. Don't send them questionnaires.

Reason: You'll tip them off. In addition, questionnaires are subject to disclosure in a lawsuit. Instead, talk to their managers or use substitute measures for working time.

Examples: Login and logoff times or security swipes.

Your executive team will expect you to understand what the DOL rules say, what they mean and how your organization should respond. Learn how to comply with these all-important overtime rules and restructure your compensation in the most legally safe and financially sound way. The New Overtime Rules: How to Comply, How to Prepare.

Step #3: Perform a cost-benefit analysis. It may pay to give annual raises to the handful of exempts who don't normally work a lot of overtime and who are on the $50k salary cusp. But for the others, you will have to compare the cost of giving them annual raises to the cost of reclassifying them and paying them overtime.

Key: Setting hourly pay rates for those who will be reclassified.

Option: You may lower their base rate of pay, but make them whole by guaranteeing them overtime and bonuses.

Step #4: Communicate the reclassification. Inevitably, some employees will be reclassified as nonexempt. Be prepared to answer two basic questions:

1. Where is my overtime pay for the last three years? Reclassifications always have employees looking to the past.

Recommended: Be nice. Tell them that their reclassification was a result of a change in the regulations and that the company strives to maintain compliance with the law.

2. How will my pay change? Reclassification means a loss of status. As a balm, you should point out that they're now eligible for overtime.

Recommended: Use side-by-side charts that compare salary.

The New Overtime Rules: How to Comply, How to Prepare

Learn the nuts and bolts of the new rules plus answers to strategic questions like:
  • Should you convert exempt workers to hourly status rather than pay increased weekly base salary?
  • How should you deal with new stringent exempt classifications that require more time spent on management, less on menial but necessary tasks? Can you even track menial versus management work?
  • Anniken DavenportWhen should you add bonuses and other incentives to base pay to meet new minimum weekly base salary?
  • Should you lower the hourly equivalent rates of pay for formerly exempt workers to make up for new overtime hours?
  • Should you rewrite your job descriptions? If so, how?
  • Should you hire part-time employees in lieu of paying full-time workers overtime?
  • Are you prepared for increased recordkeeping?
  • How will more hourly positions impact your recruiting efforts — can you hire more professional independent contractors to perform exempt work at lower rates?
Plus, you'll get Anniken's answers to your colleagues' questions about these complex, confusing new rules. Get this important guidance on the new overtime rules.
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