Exempt Minimum-Salary Increases Dec 1: Are You Ready?

Big Issues to Consider

·       Getting the work done the company needs done … at a pay rate which makes business sense and retains staff.

·       Keeping employees engaged at the same or higher level.

·       Complying with the law to accomplish the above.

o   Minimum salary (a different concept than “minimum wage”) goes to $47,476* ($913 per week) on December 1, 2016.

The actual rule is the weekly amount.  Meaning, for example, if you run a bi-weekly payroll, every check must have gross wages of at least $1,826.  You cannot have an exempt person paid, for example, $800 for some weeks and make up the difference in future checks.

$22.82 (annualized) and below per hour will not be enough to be considered eligible to be exempt.

This amount will increase every three years.

o   This is not the only basis on which to not pay overtime to a position: job duty tests remain.

o   Several states are challenging the legal basis for the federal government to make this change. At this point, companies should plan for this to take effect. 

§  Can you delay communication and implementation for several weeks?  Yes.  Delay getting ready to change?  Unwise.

Once a person is identified as currently earning less than $47,476, your core options are:

1.       Raise base pay to federal minimum à person makes more, company should receive same worked hours.

2.       Convert current base rate to an hourly rate and limit/prevent future overtime  à person makes the same, company will receive fewer worked hours.

3.       Convert current base rate to an hourly rate and allow future overtime as needed  à person makes more, company should receive same worked hours (but for different reasons company could get fewer, same or more hours worked).

TIP: If you are going to change the way someone is paid and think you have talked with the person enough about the change, you probably have not.


·       Are all companies covered under the FLSA?  Generally, you must have sales of $500,000+.  If you believe you may not be covered, please discuss all the criteria with an employment attorney.

·       Are some professions not subject to the minimum salary test?  It’s a federal law so “yes” is the complicated answer.  Outside sales, business owners (20%+ and actively involved in the org), teachers, lawyers, doctors and clergy are not.

o   What about church staff?  Members of a religious order are not subject to FLSA rules but the other members of the staff are.

·       Do bonuses count?  Only “non-discretionary” bonuses, paid not less frequently than quarterly, and only up to 10% of the minimum salary amount.

o   Yes, might be very messy math to make that calculation.

·       What if someone is part-time?  S/he still must be paid the minimum weekly salary; there is no prorating based on less than full-time.

·       What if someone is seasonal?  So long as any week of wages are $913 or more, then the person can be exempt for those weeks.

To create a new, hourly base rate, estimate worked hours by one of these methods:

·       Option (a):  merely divide salary by 2,080 where someone making $40,000/2,080 goes to 19.23/hour.

·       Option (b):  if average worked hours are 45 a week then $40,000/2,080/40*45 = 21.64/hour which some will argue is the correct, effective wage.

just to say it, there are reasons to argue for and against including all hours previously worked in the conversion

Source: http://webapps.dol.gov/elaws/whd/flsa/over...