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Start Budgeting Now – Changes Coming to the Definition of Exempt and Non-Exempt


If you currently have exempt employees, their exempt status may soon change.  As early as Fall 2016, the Department of Labor will release the final rules changing the definition of “highly compensated”.  If you currently have employees classified as exempt, it is time to review salary, hours worked, and job descriptions.

Since 1940, the Department’s regulations have generally required each of three tests to be met for one of the FLSA’s white collar exemptions to apply: (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed; (2) the amount of salary paid must meet a minimum specified amount; and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations.

The biggest change in the definition of exempt status is the minimum specified amount of pay.  Currently the salary threshold is $455 per week, $26,660 per year, and the proposed threshold will rise to $970 per week, or $54,440 per year.  This is a significant change, and makes it a good time to analyze pay and the hours your exempt employees work.

If you aren’t already, now is a good time to start collecting timesheets from your exempt employees.  You need to get a good picture of how many hours your employees are actually working.  How many hours are they averaging? Over 40 per week?  How much overtime will you owe your exempt employees each pay period?

Is it going to be financially beneficial to raise salary amounts or pay overtime?  If your exempt employees are close in salary to the $54,440 per year, and typically work 50 hours a week, is it going to be more beneficial to maintain their exempt status with a raise, or to pay 10 hours of overtime each week?

How are your current exempt employees going to feel about being non-exempt?  Many workers who are classified as exempt like being exempt because it conveys status and offers flexibility in their work hours.  Can the work required be completed in a 40 hour work week?

The Department of Labor hasn’t released any timeline for when final rules will be released or an implementation date.  Now is a good time to do your homework and analyze who is going to remain exempt and who will be reclassified to non-exempt.  Some Washington watchers have predicted that final regulations could be released as early as July and full implementation on September 1, 2016.  Traditionally the Department has given 60 days between final rule and implementation date, so you have a little time to do an analysis of salary, hours worked, and job descriptions.

The final rule could be released as early as July with implementation on September 1st, however, forecasts predict that changes will not go into effect until the end of the year.  We will watch closely and let you know as soon as the date has been released.

© Individual Advantages, LLC. 2016