Time And Money Scale

New OT Rules: Moving Exempt Employees to Non-Exempt

We alerted you a few days ago that the Department of Labor (DOL) has released final regulations regarding the salary threshold for exempt employees (click here to read the article). We recommended that employers do an analysis of their workforce to determine which employees are currently classified as exempt but whose salary is under the new threshold of $47,476. This article will review some of the issues involved in switching workers from exempt to non-exempt.

Determining a new hourly wage. It’s not as simple as dividing an employee’s annual salary by 2080 hours (40 hours x 52 weeks). Exempt employees probably work more than 40 hours per week on the average, so those hours need to be taken into account using the overtime rate of 1.5 times the hourly rate. For example, if an employee normally works 45 hours per week – and you anticipate that will continue – then set the new hourly rate at a level that makes the employee whole. However, be aware of your state’s rules in calculating an employee’s hourly wage before you make a final determination. Also, keep in mind that the hourly rate can’t go below the current minimum wage for your state or the federal level of $7.25/hour, whichever is higher.

This can especially be problematic for employees whose overtime is more seasonal – for businesses that experience regular busy- and non-busy times. You may find that the new hourly rate reduces the employee’s pay for some periods of time, even though it comes out equally when reviewed over the full year. This will require some communication on the part of the employer to ensure the employee understands and considers the new rate as fair.

Scheduling. Employees who are currently exempt are probably working outside normal business hours. Maybe they take calls in the evening, maybe they’re used to getting called in the middle of the night to take care of emergencies at the workplace, or they just keep up with their email via their smartphone during all their waking hours. This will require a shift in expectations on both the part of the employer and the employee, as any time worked by a non-exempt employee must be paid.

Timekeeping. Exempt employees often get paid without having to clock in and out or record their hours. Having to keep track of their time will require these employees to develop a new habit.

Fluctuating pay. Exempt employees are used to a flat paycheck, but fluctuating hours mean fluctuating pay. This is especially relevant when paying employees for vacation or sick leave – the maximum for a week will be based on 40 hours of paid time off, which may be a lower dollar amount than the employee is accustomed to.

Adding staff. Many businesses prefer to pay as little overtime as possible, so moving exempt employees to non-exempt positions may get in the way of current practice. A company may want to consider hiring additional employees to take on tasks or work shifts previously performed by exempt employees in order to minimize overtime. But be aware that increasing the workforce adds both direct and indirect costs in training new employees, paying federal and state unemployment, finding additional workspace, and managing additional workers.

Benefits. Do you have benefit programs that are different for exempt employees? Be sure your policies and your practice align.

As with everything involving human resources, communication and planning are key to making employees comfortable with changes. Take the time to make your plan!  Contact us with any questions you have regarding these changes or putting a new plan in place.