When thinking about the new regulations for exempt and non-exempt employees I find myself remembering the cover the Douglas Adams book, The Hitchhiker’s Guide to the Galaxy. A large thumb held high in the air and bold letters underneath reading, “Don’t Panic!”
For those who don’t know this book, it touts the answer to life, the universe, and everything. It is a constant reminder that sometimes you just need a little guidance in the complicated world of universal bureaucracy to stay calm. Go through the process of change. Familiarize yourself with what constitutes an exempt or non-exempt employee. Review your current exempt employees to see who may or may not be affected. Check your timekeeping process to see if any of your exempt employees meet the overtime standards (this means working any time over 40 hours per week). Once you have done this you can begin to decide if it is financially viable for your company to raise the salaries to keep the exemption or lose the exemption and keep the pay rate the same and be subject to overtime pay. I offer you a few options for you if you find that you have an employee that will be under the salary threshold for overtime exemption.
Meet Bob. He is a manager at a local restaurant who is currently exempt under the executive employee exemption. He meets the duties test and is paid an annual salary of about $37,000 per year ($710 per week). Most weeks, Bob exceeds 40 hours by about 10 hours a week, totaling 50 hours. There are two methods to dealing with this scenario.
Option 1: Raise Bob’s salary to $47,476 or more ($913.00 per week), effectively giving him a $10,476 bump in salary to keep the overtime exemption in place.
Option 2: Do not increase Bob’s salary and lose the exemption. Keep track of weekly work hours and pay overtime when it occurs.
I say again, don’t panic. Not every small business can pull an extra $10,000 or more out of thin air to avoid overtime. In the case where a significant raise is not in the cards, a business can look to option two. Ditch the exemption and track hours. This is the situation that can differentiate your business from others because there are multiple ways to record, track, and pay overtime.
One method is to reclassify the employee to an hourly rate. Take their current salary and divide it by 40 hours to find the per hour rate. Any hours worked over 40 is paid at time plus one half of overtime pay. In this example the hourly rate becomes $17.75 per hour and $26.63 per hour for every hour over 40 hours worked that week. The employee then becomes subject to maximum tax for all overtime pay.
Another method is to keep the employee salaried and non-exempt. In this example, you pay $710 per work week. Any additional hours would be paid at an hourly time and a half rate, which, for our example, would be $26.63 per hour.
In each one of these methods, accurate timekeeping is required and a philosophical question must be asked of the business; what is more important, hours worked or the quality of the hours worked? This change really highlights the concept of work/life balance and the need for people to take a hard look at their scheduling to see where the most effective hours exist. If this still gives you great anxiety, then my advice is to grab a towel, which is just about the most massively useful thing any interstellar Hitchhiker can carry, stick your thumb up in the air and hold on. You never know who might swing by take you to the restaurant at the end of the universe.
Sequent is here to help the small business extend HR to their organization. It’s hard to be an expert in everything as a small business. Why not leverage the assets of the subject matter experts of Sequent in a broad range of disciplines such as; compensation, benefits and HR best practices that otherwise would be cost prohibitive? Additionally, Sequent provides three mission critical technology applications, all which are “Best of Breed” to serve as the nucleus in delivering service to and supporting the employees of the business. Join Tyler Abrams, Business Strategist for answers to your questions!
Please visit with your questions and concerns and have a discreet 1-on-1 conversation with the advisor of your choice.
Please note this service is offered in different locations of the building on different weeks. It will be held on the first floor, in the welcome area, suite 190. (2nd and 3rd Thursdays of the month) and in the Metro Conference Room on the third floor (1st, 4th and 5th Thursdays of the month).
Tyler Abrams is a business strategist and advisor in the field of Human Capital Management. He helps business owners increase productivity, reduce employment related liabilities and increase overall profitability by solving problems in the areas of Human Resources, Risk Management, Payroll Management and Benefits.