The U.S. Department of Labor is implementing an updated rule regarding white collar employees’ exemptions from overtime eligibility. The new rule takes effect December 1, 2016, and can mean major changes for your business. The regulations determine whether a white collar employee is exempt from FLSA’s minimum wage and overtime pay protections.

First, it is important to determine whether your employee meets the qualifications to be considered an exempt employee, meaning she is exempt from overtime. Generally speaking, employees are exempt if: 1) they are paid a predetermined and fixed salary, 2) they are paid more than the minimum weekly salary level under the FLSA, and 3) they primarily perform executive, administrative, or professional duties as determined by the Department of Labor’s duties test. If all three of the above qualifications are met, your employee is considered exempt from overtime pay.

The major aspect of these qualifications to be changing effective December 1, 2016, is the minimum weekly salary. Currently, to be considered exempt from overtime pay protections, a salaried employee must be paid $455 weekly or $23,660 annually. Under the new ruling, those amounts will increase to $913 per week or $47,476 annually. If you currently have a salaried employee who is making less than the new regulated amounts of $913 per week or $47,476 annually, you will have to consider a couple of different scenarios to meet the new requirements.

One option is to increase the employee’s weekly/annual salary to meet the new minimum requirements. The reality is that this may not be a viable option for some employers, especially if the gap between the current salary and the new requirements is too large. The other option is to switch the employee to a non-exempt status and begin paying her on an hourly basis, with overtime pay eligibility. This will require additional recordkeeping on the employer’s part to keep track of the employee’s hours and make sure she is being paid for all hours worked.

Tracking the number of hours worked can get murky, especially if you are moving someone from a previous exempt position to an hourly basis. Any work the employee is performing for your business must be documented and paid accordingly. This means if she has access to your networks outside of the office and checks email or performs other duties outside of normal business hours, then she will be eligible for overtime pay for any hours that exceed a normal 40 hour work week. The burden of keeping track of these hours and maintaining the records falls on the employer.

You may want to consider the duties and tasks that the employee is being asked to accomplish. If you know she will continue to be expected to perform tasks outside of normal business hours and will most likely work more than 40 hours per week, consider the additional expense of overtime pay, and that may close the gap a bit more when deciding to switch from exempt to non-exempt.

Another unspoken consideration is the morale of the employee. Some employees attach a sense of importance or status level to an exempt position. If an employee is suddenly switched to an hourly status and the employer starts to track all of her hours, it may be upsetting to her and feel like a downgrade from her previous classification. It is something to consider as you are making your decisions and relaying those decisions to your employees.

Finally, the New York State (NYS) minimum wage will increase effective December 31, 2016, to $9.70 per hour. Please keep this increase in mind as you are planning employee compensations for the upcoming year. For future consideration, the NYS minimum wage will increase effective December 31, 2017, to $10.40 per hour.

Ultimately, the FLSA is set up for the protection of employees. As you consider all of your options going forward, keep your employees in mind and what is most fair to them, while at the same time what your business can support.

For further assistance, please feel welcome to contact our office—our dedicated staff is ready to assist in any way possible.