New federal regulations, which took effect on January 1, 2020, updated the thresholds that determine whether or not an employee is eligible for overtime. The salary level for overtime exemption is now $684 per week or $35,568 per year. When the U.S. Department of Labor (DOL) finalized these salary levels last fall, it eliminated the previously proposed automatic threshold escalation.
The removal of automatic increases means that employers can conduct longer-term wage and hour planning. While these thresholds took effect at the start of the year, many employers may find it more efficient and effective to analyze compensation and adjust employee classifications in tandem with annual performance evaluations or budget process. The coronavirus pandemic adds to the timeliness of such a review, as organizations may have reduced headcount, changed schedules or made other workforce or compensation adjustments.
A Thorough Approach to a Strategic Opportunity
When considering how to align employee classifications and new overtime cutoffs, employers have the opportunity to expand this administrative responsibility into a strategic exercise to refine compensation practices. RKL’s Human Capital Management team is available to support organizations through the methodical and thorough approach outlined below – contact your RKL advisor to get started.
Step 1: Determine workforce impact.
Identify exempt employees earning wages below the overtime eligibility threshold.
Step 2: Review job descriptions.
In addition to salary, job duties play a part in determining overtime eligibility. According to DOL, employees with executive, administrative or professional duties are generally exempt from overtime pay. A job description review ensures alignment with the current responsibilities and requirements of the position, and allows employers to establish which positions meet the overtime exemption criteria. From a broader organizational perspective, this review will also highlight any positions that need to be restructured in light of changing or growing demands of the business.
Step 3: Review compensation data in context of overall budget.
Zooming out to examine compensation within the larger budgetary picture means that you’ll make decisions that are data-driven and in alignment with the overall financial goals of the organization. It is important to discern the cost impact of increasing positions to the minimum exempt salary level versus reclassifying as hourly (non-exempt). Now may be a valuable time to conduct a compensation analysis to ensure your organization is evaluating the most updated, accurate information and paying competitive salary rates for the market.
Step 4: Develop implementation plan for any identified changes.
Deciding on a game plan for employee classification is a major part of the process, but its success or failure hinges on a strategic plan for implementation. Start by revisiting handbook policies – make sure exemption status definitions are accurate and update timekeeping policy if any employees will be moved to an exempt status. Consider the follow questions that may require investments or reconfiguration of tools and processes:
- Do you have a proper way of measuring and tracking hourly work and overtime?
- Do you have the proper technologies and processes in place? Consider Human Resource Information System (HRIS) software to track time and attendance properly.
Before informing the team, put together a communication strategy. How will you explain changes to managers and employees? Do you need to provide additional training to managers? Supervisors will be front line messengers in this effort, so it is critical they have the information and comfort level to address inquiries, set expectations with employees and address any issues that may arise.
Adapting to the new overtime regulations may cost employers money in the short-term, but it is a valuable opportunity to reevaluate compensation practices and job classifications over the long run. Following a thorough and strategic approach allows organizations to make sure HR practices support the organization’s overall goals and objectives.
Have questions about this approach or need support to implement? Contact your RKL advisor or use the form below to start the conversation.