Exempt employee status change on the horizon

19 Jun

Automating and outsourcing can ensure HR departments maintain accurate payroll and comply with governmental regulations.

Coming soon to a workplace near you: changes in overtime pay for employees in a variety of positions. The Obama administration plans to unveil its new regulations for employers paying workers overtime wages. These new guidelines would, among other things, include a new definition for exempt and nonexempt worker classification.

Who is exempt?
Currently, employees are exempt from being paid for working overtime, which means more than 40 hours per week, if they are executives, administrative professionals or workers in the computer, creative arts, science or learning industries, according to the Department of Labor. The position an employee holds in one of these industries determines his or her exact exemption status. In general, however, exempt employees are salaried and make no less than $455 per week, or $23,660 per year.

Nonexempt employee status covers just about every other role in the book. These workers are entitled to one-and-a-half times their regular pay rate if they work more than 40 hours in one week, according to the Fair Labor Standards Act.

What changes are on the horizon?
The Obama Administration is considering increasing the threshold for exempt workers from $23,660 to somewhere between $45,000 and $52,000, according to Politico. If the DOL raises the threshold to $42,000, The Economic Policy Institute estimates an additional 3.5 million workers will be eligible for overtime pay. Should the DOL try to account for inflation and raise the threshold to cover the same percentage of workers as were nonexempt in 1975, the threshold would have to be $69,004, subsequently covering 65 percent of salaried employees in the U.S.

How can human resources prepare for this change?
While no final figure has been reached yet, HR departments across the nation may want to prepare now for future changes. Outsourcing payroll is a positive step in the direction of compliance. Rather than entering salaries and overtime hours and then adjusting overtime wages manually, an outsourced payroll solution automates this process, freeing up HR to focus on other pressing issues. Penalties for failing to comply with any DOL or FLSA stipulations could cost businesses money and their reputations, making it more difficult to recruit and hire top industry talent.

It's imperative HR professionals ensure accuracy when it comes to both salaries and overtime pay, especially if these changes do take place and companies across the U.S. are given a fixed amount of time in which to make their own employee status adjustments. 

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