The Department of Labor's new White Collar Exemption rule setting the salary test level at $913 per week (or $47,476 per year) will be effective on December 1, 2016. As you make the decision of whether to increase salaries or reclassify affected employees, be sure to consider the following factors.
The Employee Mix
Because most firms make classification decisions at the job-level (not at the individual level, as the DOL's analysis assumes), it is critical to understand the share of employees in a given position who are over/ under the new salary threshold and how far above/below it they are.
Increasing salaries to reach the new threshold is essentially pre-paying for overtime hours and does not make sense if the individuals will not be working enough overtime to cover the difference. On the other hand, overtime premium payments can accumulate quickly. Prepayment of overtime avoids uncertainty regarding labor costs.
For firms operating in multiple locations, salaries may differ across locations as a result of the relative facility size, the type of work performed, and the regional cost of living, among other factors. Consider classifying the position differently across locations or creating separate positions to reflect important differences between locations.
Up to 10 percent of the salary requirement can be in the form of incentive payments such as nondiscretionary bonuses and commissions, but only if those payments are made at least quarterly. If you plan to count incentive payments towards the salary threshold, review your payment structure to ensure it is compliant.
The salary test level will be adjusted every three years to the 40th percentile of the non-hourly wage distribution in the South. Depending on how employers and employees respond to the new rule, that increase could be dramatic. Be prepared to re-address the issue every three years when the level is adjusted.
When you set the hourly rate for reclassified employees, be sure to consider their work hours and any premium payments that would impact the regular rate. Also remember to review any incentive programs for those employees to verify the regular rate calculations are modified appropriately.
In addition to the overtime premium payments, other costs related to reclassification may include implementing or expanding a time-keeping system, hiring and training new personnel, and re-training current personnel on new requirements and procedures. Also keep in mind the non-monetary costs of reclassification such as a decrease in employee morale and/or employee retention.