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New wage and hour regulations – what to do now (part 1)

June 21, 2016

To be exempt from minimum wage and overtime rules under the Fair Labor Standards Act (FLSA) an employee must meet both the salary basis and duties test under the FLSA. We reported on the change to the rules that were published last month. Specifically, the new rules applicable to the White Collar Exemptions under the FLSA become effective as of December 1, 2016.

The rules raise the salary basis test from $455 per week to $913 per week. This means that if you want an employee to remain exempt from minimum wage and overtime provisions of the FLSA, that employee needs to be paid at least $913 per week and meet the duties test under the FLSA. It is not enough, however, to simply meet the salary basis test.

The six-month delay in implementation gives employers an opportunity and the time to analyze their workforce to ensure compliance with the FLSA in light of the changes. What should you be doing now?

Take a look at your current exempt employees; if they make at least $913 per week now, and continue to meet the duties test, they will remain exempt. The duties test did not change but now is the perfect time to review job duties and responsibilities as well as job descriptions to ensure that employees really do meet the requirements and to correct any errors that you identify. Job descriptions are not controlling here. The important thing is what your employee actually does.

Next, look at those employees who are exempt now but who will likely fall into the gap between the current $455 per week and new $913 per week. If an employee is near the top of this range, raising the employees pay to the minimum will be necessary if you want to have that employee remain exempt. If the employee is not close to the $913, the decision to increase will be more expensive for you, and you may consider converting those employees to hourly compensation.

Remember that under the new rules, bonus compensation, incentives and commissions may be counted toward the salary basis test but only up to 10% of compensation. For these payments to count, they must be non-discretionary, paid at least quarterly and paid by the last pay period of the quarter.

Don't forget to also determine the average hours worked for your employees. If they never work more than 40 hours a week, the issue of whether they are exempt is less significant as the threshold for overtime compensation has not been crossed.

When making your decisions today, keep in mind that the salary basis will be adjusted every three years, likely upward. Accordingly, employers should plan for continued increases to base salaries in the near future and account for such increases in their budgets.

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