Department of Labor’s Change to White Collar Exemptions

The Payroll CompanyHuman Resources, Payroll, Taxes

In case you haven’t heard, there’s a game-changer in the works, and it will likely go into effect—meaning you’ll start to feel it—this year. We trust that you are already on alert, but just in case we are the messenger, here’s the down and dirty: the Department of Labor is planning to dramatically increase the minimum wage requirements for employees to qualify as exempt under the “White Collar Exemptions.” It’s possible that this hike could be as high as $50,440. Granted, it could be dramatically lower, but we at TPC find it’s always better to err on the side of caution.

True, a lot could affect what we’re about to share. We don’t know when it will be implemented, or at what degree. Congress might get involved and make all the preparation for nothing. But since, upon implementation, businesses will likely have a meager 60 days to become compliant, it’s best to be prepared. Think of it like studying for the big test. If the test is postponed, no big deal. If it isn’t and you show up groggy, very big deal.

 

Step 1—Identify the employees that might be affected.

If you don’t have any employees that are classified as exempt, or if your exempt employees are already making more than $50,440 a year, this is the end of the road for you. You may go back to business as usual. If you do have exempt employees making under this amount, be prepared, both for implementation and the chance that the minimum will increase even as early as 12 months. That’s right, we might be having the same conversation this time next year as a reflection inflating cost of living, as well as other factors.

Step 2—Determine how many hours these employees are currently working.

Some employees may need to be reclassified. Others may need a pay increase. This is where things get tricky. You may have employees who make the same but are putting in different hours, and either end up significantly overpaying or underpaying valuable staff. This is why determining the hours is a must. Don’t assume everyone is putting in 40 hours—you might have employees who are actually working 30, or others who make a habit of committing to 60 hour weeks to ensure the job is complete. By adjusting their pay to reflect their work, you risk paying extra in overtime, or adding burden to an employee with a substantial salary decrease.

When tracking time on these exempt employees, you might receive some pushback. Be sure to communicate the needs for time-tracking are for compliance purposes and no projects are being micromanaged, nor will the information be used to deduct from their paycheck.

Step 3—Math time!

Once you have the hours determined, you’re ready to make some decisions, reflective of how much work is being put into the job and what the pay is currently. Some employees might benefit from remaining exempt, whereas others should become nonexempt or switch to hourly. If you were under the impression some employees were working closer to a 40 hour week than they were, and that to pay them hourly would result in a dramatic salary reduction, it might be time for a hard conversation and difficult decisions.

Step 4—Look at the big picture.

We’re sorry to say it, but this might be the most difficult step. Because if you do increase the salary of exempt employees in order to remain in compliance, you need to step back and look at the rest of the staff. Giving an exempt employee a pay increase might be seen a demoralizing for a nonexempt employee or supervisor who now makes the same as an exempt employee, but routinely puts in longer hours. Keep the morale of the entire staff, exempt or not, in mind.

 

There are a lot of decisions on the horizon. Whatever you decide, make sure the reasons behind them are impartial, and keep a record of each. For any bumps you have along the way, look to your friends at TPC for guidance. We’re here to help decode changing regulations and help you remain complaint in such a way that is beneficial to you, your employees, and your business.