The New Minimum Salary for Exempt Status Could More Than Double in 2016. Here is What You Need to Know to be Prepared

The U.S. Department of Labor (DOL) is in the process of amending the overtime exemption rules under the Fair Labor Standards Act (FLSA). Currently, the FLSA provides an exemption from overtime pay for employees who meet certain tests regarding their job duties and who are paid on a salary basis at no less than $455 a week.

This new rule would dramatically increase the number of employees eligible for overtime pay by the end of 2016. Under the proposed new regulations, the threshold for exempt status would go from $23,600 per year ($455 per week) to $50,440 per year ($970 per week) – an amount in the 40th percentile of earnings for full-time salaried workers, according to the Bureau of Labor Statistics (BLS). The DOL estimates that this increase in salary threshold for exempt status would affect approximately five million workers, making them eligible for overtime pay. In California alone, 420,000 workers would be affected.

Why the increase in exempt status salary?

President Obama directed the DOL to change their minimum pay for exempt status because more and more employees worked in excess of 40 hours per week for pay that would put them below the federal poverty threshold. The wage threshold hasn’t changed since 2004, which is the only time it has been updated since the 1970s. Importantly, the new regulation would also include changes to the salary threshold every year, based on wage growth and inflation.

In addition to the change for exempt status, the DOL also proposes changing the minimum salary to qualify for highly compensated exempt employee status (“white collar” workers) to $122,148 from the current $100,000 threshold.

According to the National Law Review, there is a possibility that there will also be several changes to the exempt status definition, including changes to job duty requirements.

With all of these changes anticipated to go in to effect by the end of 2016, small and midsize businesses need to prepare ahead of time for the effects these changes will have on their businesses.

How can an SMB prepare for the anticipated increase in salary for exempt status?

1. Audit your exempt employees vs. your non-exempt employees and see if any exempt employees currently fall under the anticipated $50,440 annual salary threshold.

2. Once you identify current exempt employees who are earning less than $50,440, determine whether to increase their salary to $50,440 or change their status to non-exempt, making them eligible for overtime, assuming the regulation as currently proposed is finalized.
3. Implement a cloud-based time and attendance system to track your employees’ hours. This will help you stay compliant with non-exempt employee hours.
4. Evaluate exempt classifications and job descriptions to make sure the duties that your exempt employees perform qualify for exempt status.
5. If you haven’t already done so, partner with a company that provides a human capital management platform that includes HR guidance, payroll, time and attendance, and benefits management. A single HR services vendor that can give you the technology and resources across all of these functions will help you be better prepared for upcoming compliance requirements.

For a more in-depth analysis of your business, contact Jon Siders at TriNet. Jon.Siders@Trinet.com (858) 333-7509

This communication is for informational purposes only; it is not legal, tax or accounting advice; and is not an offer to sell, buy or procure insurance.

This post may contain hyperlinks to websites operated by parties other than TriNet. Such hyperlinks are provided for reference only. TriNet does not control such web sites and is not responsible for their content. Inclusion of such hyperlinks on TriNet.com does not necessarily imply any endorsement of the material on such websites or association with their operators.