Have you heard the news?
The U.S. Department of Labor (DOL) plans to develop a new rule setting a higher salary level for exempt employees. If this feels like the movie “Groundhog Day” to you, you’re not alone.
Business owners recall that the salary threshold to qualify for each of the white collar exemptions was set to rise to $47,476 a year beginning December 1, 2016. On November 22, 2016, a federal judge for the U.S. District Court for the Eastern District of Texas issued a nationwide order temporarily enjoining enforcement of the Obama Administration’s Final Rule pending a final decision on the merits. Thereafter, the Trump Administration’s DOL dropped its defense of the salary levels established in the Final Rule. It did, however, argue that the Agency has the authority to set a new salary level. In other words, DOL requested to hit the reset button on the salary test.
Two Tests: Job Duties and Salary
There are two tests that a position must “pass” in order to fall under a white collar exemption. The most important of the two is the job duties test:
Once a position passes one of the job duties tests, then the position must pass the salary test. Currently, the salary threshold is a minimum of $455 per week or $23,660 per year, with exception of the Computer Employee Exemption that allows for either a minimum of $455 per week or a rate not less than $27.63 per hour.
What happens now?
In January 2019, DOL will undergo a new rulemaking process in which it will evaluate the appropriate salary level. DOL Secretary Alexander Acosta suggested during his confirmation hearing that the threshold should be raised from its current state to a middle ground of approximately $33,000 per year or $635 per week.
How should my business prepare?
It is difficult to predict the future salary level. First and foremost, employers should review their job descriptions to ensure that their employees are properly classified as overtime exempt. The salary test is irrelevant if a salaried employee is not properly classified. Next, for an employee earning within $200 of the current minimum weekly salary level, employers should evaluate whether the employee is regularly working more than forty (40) hours per week. This will enable the employer to assess whether the cost of overtime pay will be higher than a $200 weekly raise.
Although labor costs are a significant consideration for any business, employers should also consider the effect that low salaries have on job turnover rates. Despite record low unemployment, wages have remained relatively stagnant. If the market doesn’t impact wage growth, cities and states will continue to pass higher minimum wage laws. A full-time hourly employee who earns $15 per hour will average over $31,000 per year. If your salaried employees are earning less than your hourly employees, you will likely experience increased job turnover rates regardless of the new salary level. Now is the time to review your job classifications and determine whether your salaries are competitive in today’s economy.