Salary Change Q&A

06 Jun Salary Change Q&A

What is this about?
A position is either classified as Exempt or Non-exempt.  Non exempt positions require tracking time and paying overtime for hours worked over 40 in the work week.  Exempt positions are not eligible for overtime pay and get a fixed salary amount regardless of the hours worked. There are multiple types of exemptions, and these changes only apply to the Administrative, Executive, Professional and Highly Compensated exemptions.  The changes do not apply to the Outside Sales exemption.

What is Changing for the Administrative, Executive and Professional Exemptions?
•Effective December 1, 2016, the new minimum salary level for white collar exemptions will be $913 per week or $47,476 per year.
•For the first time, employers will be able to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level, as long as those payments are made on a quarterly or more frequent basis. Annual catch-up payments are not allowed for these exemptions. If the bonus is needed to hit the required salary level but is not earned, you’d have to make a quarterly catch-up payment anyway.

What can we do with exempt employees making less than the new salary level?
•Raise annual salaries to $47,476 to maintain exemption. ($913/week, $1826 biweekly, $1978 semi-monthly, $3,956 monthly).
•Raise annual salaries to $42,729 with incentive payments paid monthly or quarterly (and totaling at least $4,747 per year) to reach the $47,476 annual amount.
•Reclassify positions as non-exempt and either change to hourly pay or keep as salaried non-exempt. Tracking time and paying overtime will be necessary.
•Restructure job duties to create job levels or share work with part-time workers to limit overtime exposure.

What is Changing for the Highly Compensated Exemptions?
•The total compensation requirement to qualify for the highly compensated employee (HCE) exemption will increase from $100,000 per year to $134,004 per year.
•The minimum salary of $913/week or $47,476 must be met, but the remaining balance up to $134,004 may consist of bonus and/or commission payments surpassing the 10% measure, and an annual catch-up is allowed for this exemption if a portion of the bonus/commission is not earned during the year.

Could we count a rental discount toward the minimum  salary calculation?
No. Our employment attorneys have advised that rental discounts would not count toward salary calculations and suggested reducing rental discounts if wage increases are required.

What is a non-discretionary bonus?
•Examples of non-discretionary bonuses include those for meeting set production goals, retention bonuses, and commission payments based on a fixed formula. If employees expect them or know how to earn them, they are considered non-discretionary, even if management has discretion to pay all or a portion of the bonus amount.
•By contrast, discretionary bonuses are those for which the decision to award the bonus and the payment amount is at the employer’s sole discretion and not in accordance with any preannounced standards. An example would be an unannounced bonus or spontaneous reward for a specific act.

What if an employee takes unpaid leave during the year, such as FMLA?
Lawful deductions from pay (like FMLA) will not destroy the exemption if the employee’s weekly earnings ordinarily would put his/her pay above the $47,476 minimum figure.

What should we do?
1.Identify current, exempt employees earning less than the new salary level.
2.Evaluate options considering salary level, bonus status and standard hours worked for those positions.
3.Choose compliance paths.
4.Inform managers of the decisions, anticipated questions, and implementation plans.
5.Budget for changes to take effect as of or before December 1, 2016.
6.Communicate to all exempt employees affected by pay changes or reclassification.

Scott Mastley, SPHR, MBA, is the Vice President of Human Resources for Resource Alliance.
Scott is a consultant, not an attorney, so he shares his opinions, not legal advice, about increasing performance and limiting liability.