Minimum Non-Exempt Salary Threshold for Employers may be revised
In March 2019, the US Department of Labor proposed a new set of rules for employers regarding the salary level for workers to be classified as exempt or non-exempt. Under current rules established in 2004, employees working more than 40 hours per week must be paid overtime if their annualized salary is less than $23,600. A new proposal now open for public comment would raise the threshold to $35,308 per year. In 2016 it was proposed to raise the threshold to $47,476 so the most recent proposal represents a compromise since the 2016 proposal generated lots of backlash from employers.
If you are an employer and have comments on the proposed rule, you must submit a formal comment by May 21, 1019 at the Department of Labor Wage and Hour Division website.
The US Department of Labor estimates that over one million workers now classified as salaried would be affected and would need to be converted to non-exempt hourly workers with overtime wage protections.
If this proposed rule takes affect many employers with salaried workers will need to determine if those workers should be converted to hourly and if so, what would be an equivalent pay rate.
How are employers affected?
- If your company is already paying employees on an hourly basis… no changes.
- If your company is paying employees a flat salary (exempt) of over $35,308 per year… no changes
- If your company is paying any employee a flat annual salary of less than $35,308 per year… well you may have some changes to make.
Here is the bottom line…If your company is paying a flat salary to anyone making less than $679 per week to “just get the job done”, then you must treat them as hourly employees and therefore track worked hours and pay for overtime (over 40 hours) . The minimum salary level for an individual to remain overtime exempt under the executive, administrative, professional, and computer employees exemptions will be increased from $455 per week to $679 per week.
How to keep your employees overall wage cost the same and still meet the new rules. Do the math.
Employers with exempt employees currently making less than $679 per week will need to estimate the actual TOTAL hours historically worked by the employee and then calculate the hourly wage rate that equates to the same overall compensation.
Converting from Salary to Hourly and keeping compensation the same.
Lets do an example: Employee Ronald typically works 55 hours a week and is paid a salary of $650 a week as an exempt employee. This means Ronald is currently beneath the new minimum annual salary level needed to qualify for the overtime exemption ($679) and now he must be changed to an hourly employee. So what hourly rate keeps the employers annual payroll cost for Ronald the same? In other words: What hourly wage is needed to still pay employee Ronald $650 a week for the same 55 hours, but at a customized hourly rate for the first 40 hours, and time and a half for the next 10 hours?
Let’s do some math:
- Ronald’s current weekly base salary=$650 or ($650*52 weeks) =
$33,800 per year
- A standard annual regular work year (40 hours per week) hours:
- Annual overtime hours worked by Ronald: (55-40) = 15 hours per week, or (15*52) =
780 hours per year.
- Overtime premium hours * 50% (time and half) hours = 780*50%=
390 OT premium hours to be compensated
- Total annual hours, plus OT and OT premium: 2080+780+390=
- The equivalent hourly salary for Ronald (considering his usual overtime) would be: $33,800/3250=
$10.40 per hour
Tracking and Recording Hours Worked
In our example, it will be a new experience for Ronald and his employer to track and record all of the hours worked. No more just cutting a paycheck and calling it good.
Does this increase the cost to employers? In some cases it might.
In our example, the employer has two choices:
Option #1 Implement a new time keeping process to record and process payroll for Ronald on an hourly basis. This might be done with a timecard, time clock or even some of the newer tools that operate as a phone app. In any case this new process will require increased administration and therefore cost.
Option #2 Increase the employees pay to above the threshold. In Ronald’s case, increasing his salary by $1,508 per year eliminates the hassle of tracking employee hours and paying on that basis.
Small business employers in the USA must get knowledgeable about the new and everchanging rules for employers. If you want to ensure your company is compliant with the DOL regulations consider joining a Professional Employer Organization (PEO). Keeping your company compliant with employment laws and regulations is what they do.
For small employers, joining a PEO is just smart business.