Three Options to Manage the New Salaried Employee Rules

The Administration has issued new rules affecting overtime payments to workers who were formerly considered exempt. What does this mean for your business?

The Obama Administration recently released a new rule governing what salaried workers can be considered exempt from overtime pay. Currently, salaried workers in certain administrative roles who earned at least $23,660 per year are exempt from overtime. Not so in December.

On December 1, when the new rule goes into effect, employees must earn at least $47,476 per year in order to be considered exempt. What does that mean for your business?

Salaried workers earning less than $47,476 annually would now be considered hourly, rather than salaried. That means your company must pay them time and a half for every hour over 40 each week. Below are some steps to take to prepare.

First, go through your payroll and identify what salaried workers receive less than $47,476 per year. If an employee earns less but is hourly, then you should already be paying time and a half for overtime work. If, however, you identify workers on your payroll who are salaried (formerly exempt) who earn less than $47,476, you have several choices. As you run through this analysis, keep in mind that you may consider bonuses (up to 10%) to meet the threshold.

1. Convert Salaried Workers to Hourly.

One option is to take these employees and convert them to hourly. It may be best to go through your payroll one-by-one to determine how many hours each employee works to determine how much overtime you will be required to pay once he or she is non-exempt. You may even ask your employees to track their hours for several months to gather this information. If your employee remains at her current level, how much will you pay in overtime wages? Some employees are considering cutting an employee’s base pay in order to compensate for her overtime hours to make the change budget neutral.

2. Give Pay Raises.

Another opportunity is to simply raise wages to meet the new threshold. If employees’ current salary level is just short of the new threshold, then it may save on administrative costs to simply give such employees wage bumps to meet the $47,476 mark.

3. Limit Overtime.

A third option is to convert affected employees to hourly at their current salary level, but prohibit overtime. This means that you will have to require employees to accurately record their time and “kick them out” when they reach their 40 hour mark. Keep in mind that many salaried workers consider their salary to contribute to their status. Having to clock in and out may be a blow to some formerly salaried workers. In addition, you may need to hire part-time workers to make up the gap.

The new overtime rules have been splashed all over the news, and for good reason. The government estimates it will affect 4.2 million workers. Although the Administration’s aim is to improve wages for workers making between $23,660 and $47,476, the net result for these workers will more likely be neutral or even negative in some cases. That is because each business must analyze the consequences of the new rule for its business and make decisions based on how it affects the budget.

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