Last month, the Department of Labor (DOL) issued a final rule that will raise the minimum salary requirement for the administrative, professional (including the salaried computer professional), and executive exemptions from $455 per week to $684 per week. The rule is effective January 1, 2020.
If your exempt employees' salaries fall below this threshold, you will generally either have to:
- Raise their salaries to the new requirement; or
- Reclassify the affected employees as non-exempt and pay them overtime whenever they work more than 40 hours in a workweek.
Click here for details on these two options.
Once you have evaluated your options, you'll want to develop a plan to communicate any changes to impacted employees. Consider the following guidelines:
#1: Get ready now.
Given the amount of attention the final rule has received, employees may start to ask questions about how they will be impacted. While you weigh your options and prepare to make a decision, let employees know that you are currently evaluating the impact and will notify them if they are affected.
Once you have a plan for complying with the new rule, think about how and when you plan to notify affected employees. In 2016, the minimum salary requirement for exemption was set to increase but a court blocked the change just days before it became effective. Unfortunately, many employers had already notified employees that their pay was changing and some even implemented the changes before the court blocked the rule. For employee relations reasons, some of these employers kept the changes rather than reversing them. While there is no indication that the new rule will be challenged, you may want to keep this possibility in mind as you develop a communication plan.
#2: Comply with notice requirements.
Some states require employers to provide advance notice about pay changes. For example, Missouri generally requires at least 30 days' notice before a reduction in pay and Nevada, New York, and South Carolina require seven days. Generally, California requires written notice of any pay change within seven days. Other states have different timelines, including notice at least one pay period in advance. Check your state and local law to ensure compliance. In the absence of a specific notice requirement, provide written notice as soon as possible.
#3: Develop your message carefully.
Your message will not only help employees understand the changes, but it can also help to shape their perception of the change. This is especially true for employees who will be reclassified as non-exempt. When drafting your message, be sure to address the following:
- Explain the change and its effective date.
- The impact on the employee.
- That the change is being made to comply with a new government rule.
- Who employees can go to with questions.
- Additional guidance that will be provided to employees (such as training on the company's timekeeping system for employees reclassified as non-exempt).
#4: Pay special attention to reclassifications.
Many employees attach a certain level of prestige and flexibility with being classified as exempt. If you reclassify employees as non-exempt, they may see it as a demotion. You can try to address this perception by reiterating that the changes are necessary to comply with the law (and not an indication of a reduced status within the company). Additionally, explain the benefits of being classified as non-exempt, such as a potentially improved work/life balance, or receiving overtime pay whenever they work more than 40 hours per week. You may also choose to reclassify impacted employees as non-exempt, but continue to pay them on a salary basis. However, overtime pay is still required for all hours worked over 40 in a workweek.
Reclassified employees may also ask about:
- Changes in pay: An employee who is reclassified as non-exempt may ask what will happen if they end up working less overtime than anticipated and that results in an annual pay that is lower than when they were exempt. While employers generally wouldn't be required to pay for shortfalls that result solely from an employee working less overtime than anticipated (unless they were promised otherwise), a significant reduction in pay after reclassification could result in employee morale issues. Consider how you will handle these types of scenarios should they arise and be prepared to answer employee questions.
- Overtime policies: Most employers require employees to obtain authorization before working overtime. Note: Regardless of your policy, all overtime must be compensated, even if it was not authorized in advance.
- Timekeeping: Address the system your company uses to track time, whether employees are expected to punch in and out for meal periods, and exactly what time must be accounted for (such as, breaks and meal periods).
- Benefits: Some employees may wonder if their benefits package is impacted by the change. Typically, factors such as an employee's status as full-time or part-time impact their benefits, not whether or not the employee is exempt from overtime.
#5: Train supervisors and employees.
Train supervisors so that they provide information consistent with your company's policies and messaging. Since many exempt employees aren't accustomed to tracking their hours, train reclassified employees to record their hours accurately. Under the FLSA, hours worked includes not only productive time (time actually spent working), but also certain nonproductive time, such as rest breaks, travel time, and training time. All of this time must be included when determining whether you have met your minimum wage and overtime obligations.
Exempt employees may also be used to working after hours, including making phone calls and checking email. Now that they are classified as non-exempt, these employees would be entitled to additional compensation for this work. If you allow non-exempt employees to continue working after hours, then make sure you require them to record all the time they spend working so that they can be paid accordingly. Alternatively, if you would like to reduce after-hours work, ensure supervisors set proper expectations with their staff and that they are prepared to monitor employees. Also consider controls, such as preventing access to work email outside of business hours or requiring permission before performing work during off hours.
#6: Prepare for difficult conversations.
The new rules may present some difficult decisions for employers. For example, if you raise the salaries of some employees to comply with the new rules, other employees may have questions about why their pay isn't increasing or why they are being reclassified as non-exempt instead. Be prepared to field these types of concerns.
#7: Don't prohibit pay discussions.
In an attempt to prevent discord, some employers might contemplate a policy prohibiting employees from discussing their pay with co-workers. However, prohibiting pay discussions is not permitted under Section 7 of the National Labor Relations Act (NLRA). Section 7 gives employees the right to act together, with or without a union, to improve wages and working conditions. Workplace rules or policies that could be construed to prohibit employees from discussing pay, benefits, and other terms and conditions of employment could violate Section 7.
Conclusion:
Before January 1, 2020, decide how you'll comply with the new rule and communicate changes to impacted employees.
