This is part 4 of 4 HRX posts related to the new federal overtime rule. A helpful FAQ also is available.
Previous HRX posts have addressed how to check for compliance with the new exempt salary threshold scheduled to take effect January 1, 2020, how to calculate weekly salary, and how to communicate changes to employees. What about timing and logistics?
HR professionals who experienced the proposed changes that never came to pass due to legal challenges in 2016 might still be feeling the burn of proactively raising salaries of some employees only to later be yoked with the additional costs when the new salary threshold never became official. With that in mind, this post will help you decide when to implement changes.
Rather than waiting until the last minute to make changes, it would be prudent to move forward with checking for compliance and communicating any changes. Unlike 2016 when the proposed annual salary threshold was set to double from $23,660 to $47,476, the new proposed minimum is more reasonable ($35,568) and thus much less likely to be challenged by business groups. Likewise, the new rule doesn’t require automatic threshold increases every three years, which was another major sticking point in the 2016 version.
If any employee salaries are raised to maintain exempt status, it’s important to consider the possible effects this could have on employees in the same job or in comparison to their supervisor.
For example, an exempt employee earning $33,000 might currently make substantially less than their supervisor who makes $39,000. However, if the subordinate’s salary is increased to $35,568 to remain exempt, the difference between their pay is compressed from $6,000 to only $3,432. The same issue could also arise for two employees with different amounts of experience who are doing the same or similar jobs.
For compression between supervisors and subordinates, one option would be to adjust the pay structure in the future to provide more separation between affected pay ranges. For compression between employees doing the same job, equity adjustments might be needed to keep pay aligned with experience. Since both options could be costly, it is advisable to instead consider if a salary increase enacted only to retain exempt status is worth it.
Reclassifying employees as nonexempt is an easy solution if current pay is far from the salary threshold or if increasing pay would create internal equity problems or push the employee above the current pay grade maximum. If the difference between an employee’s current salary and the new threshold is small, bumping up the salary may be the best bet.
More information will be posted as it becomes available. In the meantime, view previous posts on the subject in the HR Laws section of the HRX archive, including a helpful FAQ. General guidance and an FAQ section are also available through the Department of Labor.
Erin Kolecki and Keith McLemore are Compensation and HR Consultants at TASB HR Services. Send Erin or Keith an email at firstname.lastname@example.org or email@example.com.
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