The Department of Labor has passed a new rule that could significantly impact the way you compensate your employees. Last set in 2004, “white collar” employees who annually earned $23,660 or more, were salaried, and who meet the “duties test”, were exempt from earning overtime. Over a decade has passed without this salary cap increasing with inflation. Effective December 1, 2016, and eligible for renewal every three years, the new salary cap has increased to $47,476 annually for an employee to be classified as exempt. If a current exempt employee earns less than $47,476, then they will no longer be classified as exempt under the new rules. These changes are estimated to affect at least 5 million employees and will be applicable to most businesses.
Additionally, the Department of Labor has changed the compensation level for employees to qualify as exempt under the exemption for highly compensated employees who have passed the minimal duties test. The new salary to qualify under this exemption is now $134,004, annually. The duties of employees who earn $47, 476 to $134,004 will determine if they are exempt from overtime.
Here are a few ways to prepare your business for this change:
- Identify employees who earn less than $47,476 per year.
- Identify employees who earn $134,004 or more per year.
- Analyze job descriptions, including borderline exemption classifications for executive, administrative, professional, outside sales employees and highly compensated employees.
- Reevaluate exemption classifications to determine that positions are properly classified and meet the tests for salary compensation.
- Ensure your payroll system reflects exempt/nonexempt statuses accurately.
- Consider increases in compensation, reclassification of positions as non-exempt or exempt, and changes in duties in order to comply with exemption requirements.
- Check any applicable state exemption laws.
- Calculate projected costs to the organization including costs of salary increases and the number of hours worked by impacted employees.
Contact FAL CPA Firm at 702-870-7999 for a consultation. We can help you navigate this and other payroll compliances for your business.