The Department of Labor has proposed an increase in the salary-level threshold for white-collar exemptions from $23,660 to $35,308. The department has estimated that over a million employees will receive raises or become eligible for overtime pay. The proposal does not include automatic adjustments to the $35,308 salary, does not differentiate based on region, or make changes to the duties tests. The proposed federal overtime rule isn’t expected to take effect until January 2020.

Although the proposed increase is not finalized, this is a great time to audit your workforce classifications to identify potential adjustments. SHRM’s Proposed Overtime Rule Covers More Workers is a great resource to learn more about the proposed rule.

Reclassification vs. Increased Pay

If the proposal goes through, you may choose to reclassify employees who were considered exempt from the overtime requirements and have salaries below the proposed salary-level threshold to keep wage costs down. Companies who do this would set an hourly rate for the employees that would equal the same number of hours worked and the equal total pay, even with the possibility of overtime hours. Employers should use caution with reclassifying, as employees may view the change from exempt to nonexempt as a demotion.

You may also choose to raise employees’ salaries above $35,308 per year to keep them exempt. If employees work in excess of 40 hours per week, it may be less expensive to increase their salary, rather than paying them for overtime.

Nondiscretionary Bonuses

The Department of Labor’s proposed rule states that nondiscretionary bonuses and commissions paid on an annual or frequent basis would satisfy up to 10% of the exempt salary level. It is predicted that these bonuses will become much more frequent if the proposal is passed. See SHRM’s article, Small Bonuses May Count Toward Determining Who Is Exempt, for more information on nondiscretionary bonus classification.

Periodic Review

In addition to this proposal, The Department of Labor intends to propose salary-threshold updates every four years. The department is specifically seeking public comment on the proposal’s language addressing periodic review. If you’d like to comment on the proposal, visit www.regulations.gov. You will have 60 days to comment from the time the rule is published in the Federal Register.

If you’re not sure what to do about this proposed change, Purple Ink can help! Here are some of the things we can do to make sure you’re compliant:

1. Conduct a job duties audit of the actual duties performed vs. the written job description to ensure accuracy of work being conducted.
2. Review and revise job descriptions for each position and ensure they accurately reflect the work being performed by employees. Designate non-exempt/exempt on each job description.
3. Conduct an employee handbook review to be sure that classification definitions are accurate and policies are up to date.
4. Benchmark salary averages for each position to assist with decisions on potential reclassification or raises.

Again, the proposed rule is not finalized and must go through the formal rulemaking process before the $35,308 salary level is enforced, but it’s still a good idea to start thinking about it now. If you could use some help preparing, reach out to Purple Ink; we’d be happy to help or answer your questions. Stay tuned for the final ruling.