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. The new regulations will require employers to take a careful look at their current workforce. Please see our previous blog posts addressing related considerations here and here.
After you analyze your current workforce you may decide that certain previously exempt employees will no longer be exempt when the new rules become effective in December. If an employee is no longer exempt because you have determined that they do not meet the duties test or because their salary will fall below the required amount on the new salary basis test, the employee will be entitled to minimum wage and overtime compensation for all hours worked.
Non-exempt employees may be paid on an hourly, piece-rate, salary, commission or some other basis but the employer must ensure that the employee is paid at least the minimum wage for all hours worked. In weeks in which an hourly employee works less than 40 hours, this could actually result in savings.
Some employees may view being paid a salary as a status symbol. It also provides some measure of stability and predictability for an employee because the employee knows what the paycheck will be. You can continue to pay a non-exempt employee a salary; however the employee must be paid overtime for all hours worked over 40 each workweek.
Employers who have increased exposure to overtime costs because more employees do not meet the salary basis test have the ability to implement changes to work schedules and to adjust wages to account for the possibility of overtime. They also may wish to institute a work policy or rule that requires advance approval for overtime worked. While employers must still pay for any overtime worked, if it was not approved, the employer may discipline an employee for failure to follow the rule or policy.