HR Budgeting: 1 Proposed Salary Rate Change You Should Know

Tis’ the season for HR budgeting. As you finalize your 2016 list and check it twice, there are some potential new laws that, if not planned for, could put a dent in your spending.

Proposed Federal Regulatory Changes

Please note these changes have not gone into effect, but are speculated to go into effect at some point in the new year.

Currently, the Fair Labor Standards Act (FLSA) determines whether or not an employee is exempt from overtime pay. Any employee can be non-exempt and subject to overtime payment for hours worked over 40 in a week and for required meal and rest periods.

However, in order to be exempt, employees need to meet certain criteria. One criteria is based on job duties and the other is based on salary. Currently, the annual salary requirement is $23,660. The new rate—proposed in July by the Department of Labor—would increase the salary requirement by 102% to $47,892. That’s a serious change to consider.

So, What Are Your Options?

If you are paying exempt level employees under $47,892, then you will need to weigh increasing their salary to hit the new salary requirement, or change them to a non-exempt status. Your decision will depend on exactly where an employee’s salary falls between $23,660 and $47,892, how many weekly hours they usually log, plus the employee’s specific job responsibilities.

Have you budgeted for increasing salaries? It will not be an option to continue paying employees at the lower rate while considering them exempt—they will need to be compensated for overtime pay.

Changing an exempt employee to non-exempt status comes with its own set of rules to follow. Employees attach a certain amount of freedom and cachet to being exempt. Being asked to track hours, take a meal break, and only work 40 hours a week (and still get their work done) could seem limiting.

Furthermore, there is more administrative burden with non-exempt employees. As an employer, you need to track their hours, typically via a timesheet or online tracking system. You must retain these records for three years. You must provide meal and rest periods for employees. You must also pay them one and a half times their hourly rate for any hours worked over 40 in a week. If the work cannot be done in 40 hours, it may require you to hire additional staff if you do not want employees working overtime (or paying overtime so the work gets done).

What Can You Do Now?

Review your employee’s current classifications and salary levels. Furthermore, remember to review your own state legislation so you’re aware of unique exemption rules in addition to federal laws. California is just one example with very unique exemption laws that will also be impacted by this federal change.

You’ll want to analyze the impact that changing salaries may have on your organization. If you cannot afford to move salaries—do you have processes in place to track employee hours? Are your managers trained on the rules around managing non-exempt employees (meal and rest periods, overtime, etc.)? How will you communicate the changes to employees without them seeing it as a take away? Are you appropriately staffed? These are all important things to consider as we head into the new year. Before checking off all the items on your annual budget wishlist, I encourage you to keep an eye out for this important legislative change.

Salary is only one piece of employee classification.

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