The Department of Labor (DOL) has proposed nearly doubling the minimum salary for white-collar exempt employees in 2016. For employees exempt under the executive, administrative, or professional exemptions, the minimum salary requirement is currently $455 per week ($23,660 annually), but could increase to as much as $970 per week ($50,440 annually). It is important to note that not only will the salary rates change in 2016, but the Department of Labor (DOL) wants to establish a formula for automatically updating the salary and compensation levels going forward to ensure that they will continue to provide a useful and effective test for the exemption. Therefore, when reviewing salaries, anticipate that this will be a regular process; the Department’s proposal is to set the standard salary level which will be reviewed on an annual basis.
The DOL has announced that the final regulations on changes to the law will be issued this July with implementation 60 days following the publication. With this news comes a reminder for employers that they will need to be prepared for this change. Although it is unknown at this time whether changes will also be made to the “duties test” for these exempt statuses, there are still steps that proactive employers can take to be ready when the final regulations are published.
First, are your job descriptions up to date? Businesses change over time, and it’s wise to periodically update and review job descriptions. If you designate a position as “exempt,” be sure to record which exemption you are placing it under. Although not legally required, this step will help your analysis and assist anyone else reviewing job descriptions for exempt/nonexempt status. In determining whether a position is exempt, an individual must also meet all of the duties tests, as summarized below.
- The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;
- The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and
- The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.
- The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
- The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
- The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment;
- The advanced knowledge must be in a field of science or learning; and
- The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.
Review salaries or salary ranges to determine which employees will need adjustments in order to comply with the new regulations. These adjustments could wreak havoc not only with your budget, but also with employee morale issues as word gets out that some employees, but not others, are receiving pay increases.
In reviewing the previous suggestions you might want to look at the number of hours that the individual is working in order to determine the most cost-effective avenue to take. If you have an exempt employee making under the new threshold, it may or may not be cost-effective to increase their salary, depending on the number of hours they work per week. This of course could be challenging to analyze as typically exempt employees don’t keep track of the hours they work.