F E AT U R E
duties tests are vague and subject to
considerable interpretation, so many
jobs were being classified as exempt
from overtime that probably should
not have been. There is consider-
able lack of understanding/infor-
mation on how all this works with
some managers thinking employ-
ees can “opt out” of overtime (they
can’t), and the advent of the internet
and 24x7 accessibility meant workers
were working far more hours (often
at night and on weekends) yet being
paid the same rate as prior. Just do
some quick math: if an employee
works 60 hours a week and is paid
$36,000 a year, that’s $11.54 an hour.
This is less than temporary secretar-
ies were paid in 1989 (I know because
I was making $12.00 an hour working
for Manpower). quarter) then you must do a catch up
payment at the end of the quarter).
WHAT HAS CHANGED 1. Continue to classify the employee
as exempt and raise their annual
salary to $47,476 (or $42,728.40 if
you are paying more than $4,747.60
in incentive pay).
The government raised the minimum
salary required to consider an
employee exempt from overtime. It
was $455 a week or $23,660 a year.
Now it is $913 a week or $47,476 a
year. Note this test comes BEFORE
any duties test. It doesn’t matter if
their duties are justifiably exempt
(e.g., they are a division manager over
100 people). If they aren’t paid at this
salary level, then you must raise their
pay or start paying overtime based
on the rules of your state (for most
states this is 40 hours a week).
Note that the DOL has allowed
that commissions, non-discretion-
ary bonuses, variable comp, sales
comp, etc. can satisfy up to 10% of
the salary requirement (or $4,747.60).
This means that you can use variable
or incentive compensation to reduce
your salary minimum requirement
to $42,728.40 (but if the employee
doesn’t actually ear $4,747.60 paid
on a quarterly basis ($1,186.90 per
HOW DO I KNOW IF I HAVE TO
CHANGE AND WHAT DO I DO?
If you are not currently paying
overtime to an employee and
that employee is making less than
$42,728.40 a year in GUARANTEED
SALARY plus $4,747.60 in non-dis-
cretionary incentive pay, you MUST
make a change. Note, if the incen-
tive pay is less than $4,747.60 then
the salary must be higher to make
up the difference.
You have two options, and you
should consult a labor attorney
about which option makes the most
sense for you.
2. Reclassify the employee as non-
exempt and pay overtime.
You will likely take option 1 for some
of your employees and option 2 for
others.
In order to not break your compen-
sation budget, you need to do some
math under either option. Under
option 1, you will need to overhaul
your compensation plan, target
incentive amounts, and/or perfor-
mance expectations to account for
the increase in salary. For most this
will mean increasing the thresh-
old required before incentive pay
is earned, and/or reducing commis-
sion rates. It will not be easy, but it
IS doable.
25
Under option 2, you will need to
refigure salary (you can still pay using
a salary approach but pay overtime
- this is called “salaried non-exempt”
and it may be the right answer for
many of you), and their incentive pay
(e.g., commission rates), to account
for some amount of additional pay
that will come to them in the form
of overtime pay. Usually you will
need to reduce the salary a little and
reduce the incentive a little to make
up for the additional income in over-
time pay. Note that you must also
figure overtime pay on any incentive
earnings (this is where the math gets
convoluted, but the overall impact
to costs is around 10% of the incen-
tive pay if an employee is working 50
hours a week).
There is another option when you
reclassify to non-exempt, but for
many it is not practical. That would
be to ensure that no overtime is ever
worked. This would mean you do not
need to change anything about your
current pay arrangements, but you
would have to be certain that the
employee is not working ANY hours
over 40 a week (at home, on the
weekends, ANYTIME). We know for
many of you that this will not be pos-
sible, though you may save money in
the long run by considering hiring
additional resources to take over
some of the excess work.
To make things easier, we have devel-
oped a free Excel-based tool that will
help you evaluate the cost of the dif-
ferent options. Please email info@
prosperiogroup.com or call 815-534-
9228 for guidance and to get a copy
of our free FLSA evaluation tool.
Customized Logistics and Delivery Association | Fall 2016