The most significant change under the new Department of Labor rules which go into effect on December 1, 2016 is the two-fold increase to the salary level needed to qualify for certain white collar exemptions. The salary level for the executive, administrative, and professional employee exemptions will double from the current level of $455 per week ($23,660 per year) to $913 per week ($47,476 per year).

Steps Needed to Begin Accessing Financial Impact and Determining Actions Needed:

  1. Exempt Employees Earning Less than $47,476 per Year: Determine which employees are earning less than $47,476 per ($913 per week). Note: This amount may include 10% of nondiscretionary bonuses and incentive payments.
  2. Review All Company Positions for Correct Classification: This is a good time to review if certain positions should be reclassified as non-exempt based on the job duty requirements.
  3. Time Study to Determine Overtime Hours: Consider developing a time study that takes a current pay period into consideration. If your company/firm has unusual high overtime hours worked during a peak time, be sure to alter the findings for this time. Due to the short amount of time before the new rule takes effect, there will have to be several assumptions made.
  4. Determining New Hourly Rate of Pay: Some larger companies are merely dividing the annual salary by 2080 hours to derive the new hourly rate of pay. However, most companies will need to develop a formula (which might be different for each position) that will realistically determine the hourly rate needed to include consideration for the overtime expected to be worked.
  5. Consider Year End or Quarterly Bonuses: In some cases due to possible negative cashflow consequences in changing a position from exempt to non-exempt (which will require paying overtime), some companies will opt to provide a conservative hourly rate for this change. The employer may communicate to the employee that the company will consider providing bonuses next year after the employer has had time to review the results of changes. This possibly can ensure that employees are not penalized by earning less money after the change.
  6. Increasing Exempt Employees Annual Pay up to $47,476: If it is determine that certain positions must remain exempt, then the employer must determine how to increase their current exempt employees’ pay to at minimum $47, 476 per year or $913 per week. The employer may consider raising current employees who will remain exempt prior to December 1 so that on the pay period including December 1 both the changes in salary and changes in converting certain employees to non-exempt status does not occur in the same pay period.
  7. Review Data and Develop Different Excel Based Scenarios: ASAP, review current and historical payroll data, possibly develop a time study (with assumptions added) and then begin compiling different excel based scenarios to determine cashflow impact. Make the correct decisions for your company.
  8. Communication to Employees: Employers will have to be very sensitive in switching over exempt employees in certain positions to a non-exempt status. Employee morale will be affected. Employers need to deliver clear, clear positive communication to employees why certain actions will be taken by December 1.
  9. Continued Monitoring: After December 1, Management will have to continue to review the expected cashflow results to actual results and then tweak certain positions pay scales.

By Dennis L. Day, CPA.CITP, CGMA President of DLD Business Solutions, Inc. which provides Payroll Software Solutions.  Member the American Payroll Association