CLDA Magazine - Fall 2016 1 - Page 25

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@ 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