In our previous blog posts, we discussed exempt vs. non-exempt classifications, as well as the importance of job descriptions and job analysis in determining an employee’s classification. Once you have completed a job analysis for your employees to fully understand each position as it exists today, then it’s time to gather some additional data to help prepare for the new overtime regulations through the revised Fair Labor Standards Act.
The next step is to make a spreadsheet of all employees who quality as exempt based on job duties. This spreadsheet should include employee name, job title, and base pay or salary. Then, sort the employees by salary to determine who falls above and below the new minimum pay threshold of $47,476.
If an employee does not meet the minimum threshold for salary currently, your next step is to analyze how much overtime pay they receive in a year. Using their base pay amount and average number of overtime hours worked per pay period, you can figure out how far below the threshold they are currently being paid. Then, you can make determinations on whether or not to increase their base pay to meet the threshold and remain exempt or to keep their pay at the same level and shift them to non-exempt status with overtime pay.
For example, let’s say an employee is currently exempt (salary) with a base pay of $35,000 per year or the hourly equivalent of $16.82/hour based on a 40-hour work week. This employee averages 10 hours of overtime per week, which totals about $13,000 per year based on an overtime rate of $25.24/hour. Thus, for this employee, it likely makes sense to increase their base pay to the minimum of $47,476 needed to qualify as an exempt employee, as their current annual pay is $48,000 already when factoring both base pay and overtime.
For another example, let’s say an employee is currently exempt (salary) and making $42,000 per year or the hourly equivalent of $20.19/hour based on a 40-hour work week. This position works on average two hours of overtime per week, which amounts to about $2,100 in extra pay per year. So does it make sense to increase this employee’s pay to the minimum threshold and pay them as an exempt (salaried) employee? Maybe, but maybe not.
This second scenario illustrates an important consideration for every employer in regards to new overtime laws — employee morale and how changes to employee status may impact morale. Because of this regulation change, some employees will get a raise. Other employees will shift to hourly pay with overtime. Some will be excited about the change in their status; others will not. An employee who has been salaried for years but now must go hourly and clock in and out may feel like it’s a demotion, even if their actual pay does not change or even goes up. Another employee who shifts to hourly may be excited about the opportunity for overtime, and could potentially feel as if they have been abused over the years based on what they made and the time they have been putting in every week.
With the new FLSA changes, it’s important to make sure your company is in compliance in terms of how employees are classified, but it’s even more important to make sure you clearly communicate the upcoming changes to your employees. Part of the message to your employees is that the regulations have changed, and it’s important for the company to abide by the regulations while also making smart decisions for the future of the company. It’s also helpful to start talking with employees about the upcoming changes now so that they have a better understanding of the new regulations before changes go into effect.
If you need help communicating the FLSA regulation changes to your employees or analyzing your employee’s exempt status, call WhyHR today. We are happy to come visit your office and talk about these changes and the impact it may or may not have on employees.