Recent changes to the salary basis test for exempt employees have led to questions regarding compensation for those employees.  These changes, which increased the minimum weekly salary for exempt employees from $455 to $913, are no longer an abstract argument – they are actual law and the new normal for employers who wish to avoid paying overtime to certain employees.  With that being said, here are some simple strategies to aid in preparation for the December 1, 2016 implementation.   

First, this is the perfect time to review your current wage and hour practices.  When it comes to compliance, the stakes are high.  Misclassification of a non-exempt employee as exempt can have costly ramification, as the business may lose the exemption for not just that one employee who complains, but an entire class of employees, retroactive up to two years for non-willful violations and three years for willful violations.   It is essential to remember that, even though the news in focused on the annual per employee cost, exempt employees must also meet the job duties test.  It is crucial to partner with human resources and conduct a thorough wage and hour audit, to include a review of the job descriptions and actual job duties of all exempt employees. Importantly, if an employee is found to have been improperly classified as exempt, in the absence of actual time records, it the employee’s own estimate of hours worked which will be used to calculate overtime due.   

Next, if any issues are found during an audit, whether with regards to classification, pay, deductions or overtime, address those issues immediately.  As predicted, the increase in the exempt salary basis was accompanied with fanfare from the Department of Labor (DOL).  And, with industry sounding the alarm for well over a year with regards to this matter, the DOL is already expecting non-compliance and preparing to react.  It is always better to have corrected any issues through self-auditing than to wait for the DOL, or worse, an attorney, to come knocking.  Wage and hour laws are among the most punitive in the employment arena and, if an employer owes any back wages to the employee, that employer is required to pay all legal fees related to recovering those wages. Importantly, it is not unheard of for the legal fees to far outweigh the actual back wages.   

Just as a plan for dealing with past issues is critical, employers must develop a plan to address future costs associated with the increase.  Few businesses operate with such a huge margin that they can easily absorb an over 100% increase to even one $23,660 annual line item.  There are alternatives to increasing salaries.  Each alternative comes with its own set of pros and cons and the final determination should be tailor-fit to the unique needs of the business and its workforce.   Finally, don’t panic! Human resources professionals have been preparing for this change for a long time. 

Now is the perfect time to put all that planning and preparation into action. View more information on MBA's Overtime Analytics Tool here.

Author: Edwina Maxwell, VP of Sales & Client Relations, at Modern Business Associates (MBA), received her J.D. from Stetson University College of Law.  Maxwell oversees the development of customized, scalable client solutions, with a focus on top-notch service.  Prior to joining MBA in 2006, Maxwell was employed by the City of St. Petersburg’s Police Department.