On Dec. 1, 2016, the U.S. Department of Labor’s (DOL) final rule updating white collar exemption qualification requirements will go into effect. This change is expected to affect more than 4 million workers across the United States. The final rule increases the salary an employee must be paid in order to qualify for a white collar exemption—from $455 per week ($23,550 per year) to $913 per week ($47,476 per year). The final rule also increases the salary level for the highly compensated employee exemption to $134,004. The required salary threshold will be updated every three years. Implementing the new rule will be an expensive endeavor for many employers. Employers will have to review employees’ exempt status, update overtime policies, notify employees of changes and adjust payroll systems. All of this could cost employers more than $592 million, according to estimates from the DOL. Employers must comply with the new rule by Dec. 1, 2016. A failure to adhere to the new overtime rule could result in penalties, fines, criminal charges, lawsuits and restrictions in commerce.
In order to prepare for the new rule, employers should do the following:
- Conduct an internal audit to determine which employees are affected by the salary level change, based on the new rule.
- Consider giving raises to employees who will continue to be classified as exempt but do not make the required salary.
- Make sure that non-exempt employees have processes in place for tracking hours worked.
- Pay overtime to non-exempt employees when required.
- Develop clear overtime pay policies in order to reduce payroll expenses.
- Analyze workflows to identify areas for improvement and determine if any processes can be streamlined.
- If necessary, review cost-cutting measures to make up for increased payroll expenses.
- Clearly communicate overtime policy changes and time-tracking procedures to employees in advance of Dec. 1. The earlier you start communicating, the better.
By following the steps above, you can ensure that your business is prepared for changes to the overtime rules and protect your bottom line in 2017 and beyond.