Here are four potential ways that employers can respond to the DOL’s new overtime rule with respect to exempt employees who currently earn less than the new $913 per week threshold:
- Increase the Employee’s Pay To Maintain the Exemption: One way to deal with the DOL’s new overtime rule is to increase exempt employee’s pay to make sure that the new $913 per week threshold will be satisfied when the new rule takes effect on December 1, 2016. This approach will ensure that the employee remains exempt from the FLSA’s overtime provision.
- Treat the Employee As Non-Exempt and Prohibit Overtime: If an employer wants to avoid giving an employee a raise to meet the new threshold and wants to avoid paying overtime, the employer can begin treating the employee as non-exempt, monitor his or her worktime closely, and prohibit the employee from working more than 40 hours per week. The potential downside of this approach is that it may reduce the employee’s productivity and could require the employer to hire additional staff.
- Treat the Employee As Non-Exempt and Adjust His or Her Pay Rate To Avoid Increased Costs: Another way that employers can keep their costs equal following implementation of the new rule is to begin treating the employee as non-exempt, but adjust his or her pay rate so that, even with overtime, the employee’s annual earnings are approximately the same as when he or she was exempt. One potential downside of this approach is that the employee’s weekly pay may decrease below his or her prior salary level during weeks when no overtime work is performed. These fluctuations in pay should even out over time provided that the employee’s work hours stay roughly the same, but they may create retention issues for the employer.
- Treat the Employee As Non-Exempt and Start Paying Overtime: The final way for employers to respond to the DOL’s new overtime rule is for employers to keep the employee’s rate of pay approximately the same, but also start paying time-and-a-half overtime. This is likely the most costly approach for employers to respond to the DOL’s new overtime rule. For employees who will earn at least $913 per week on average with this additional overtime, it likely makes more sense for the employer to increase the employee’s salary and keep the employee as exempt.