You’ve all heard about changes coming to financial advisors handed down by the U.S. Department of Labor (DOL). But did you also know there are major changes that affect all employers – including you?
Wage and overtime changes and what they mean to you
Here is a down-and-dirty overview of the changes. This is not an exhaustive list; you should consult a Human Resource professional for guidance for your particular practice.
• The new rules go into effect December 1, 2016.
• The change raises the salary threshold that exempt employees must be paid from $455 per week to $913 per week, or $47,476 annually. An exempt employee is a worker who is not subject to minimum wage and overtime.
• The rule updates the total annual compensation level for highly compensated employees from $100,000 to $134,004 per year.
• The ruling calls for automatic updates to the salary threshold every 3 years, based on wage growth over time.
Did you know that the DOL Wage and Hour Division presumes all employees to be non-exempt, and entitled to overtime, unless proven otherwise by the employer? Here are some common misconceptions about exempt vs. non-exempt employees:
• If an employee is paid a salary, he/she is exempt and not eligible for overtime.
• If an employee has a certain position title, such as “Manager,” he/she is exempt.
• If an employee earns an amount greater than the threshold amount, he/she is automatically exempt and not eligible for overtime.
These statements are all false. Even if a non-exempt employee is paid a salary, that employee is entitled to overtime for any hours worked in excess of 40 hours per week. For purposes of employee classification, i.e. exempt versus non-exempt, job titles are irrelevant – the actual job duties performed by the employee is the determining factor. As for highly compensated employees, the salary threshold amount must be a fixed, pre-determined amount not dependent on sales or commissions.
Impact on you
• You must pay a fixed, pre-determined salary to exempt employees. Even those employees who earn well over the new threshold amount must be paid a pre-determined salary to be classified as exempt.
• You must pay overtime for non-exempt salaried employees for time worked in excess of 40 hours. You must track time for all non-exempt employees, including those receiving a salary.
These are your options
The Department of Labor has identified the following options for employers:
1. Pay time-and-a-half for overtime work.
2. Raise employees’ salaries to comply with the new threshold.
3. Limit employees’ hours to 40 per week.
4. Some combination of the above.
We’ve put together two scenarios so you can see how these options might work in a typical practice.
Scenario One: An Advisor employs a Marketing Manager who is classified as exempt and paid an annual salary of $40,000.00.
- EmployShare’s Recommendation: Weigh the costs associated with raising the employee’s base salary to meet the increased salary threshold vs. re-classifying the position as non-exempt and paying the employee overtime in accordance with state and federal law.
Scenario Two: An Advisor employs an Associate Advisor who is being paid a percentage of Gross Dealer Concessions (no base salary). The annualized amount of GDC paid to the Associate Advisor is approximately $140,000.00.
- EmployShare’s Recommendation: Consider re-structuring the Associate Advisor’s compensation structure to include a base salary that meets the increased salary threshold, along with a percentage of GDC. The Associate Advisor’s payout percentage can be decreased to account for the base salary. The “salary basis test” for exempt employees requires that the employee is paid a “pre-determined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed.”
What you need to do
The final rule will become effective on December 1, 2016. Don’t wait until then to figure out what you need to do in your practice! You should prepare for these changes now.
-Review and evaluate current employee classifications and their current compensation structures.
-Consider employees’ actual job duties/responsibilities to determine whether they perform “exempt duties.”
-Examine employees’ threshold salary requirements at $455.00 versus $913.00 per week to determine which employees may fall below the applicable threshold.
-Reclassify employees and create new job descriptions accordingly.
-Update salary and compensation agreements.
-Review time tracking systems and employee documentation.
-Be prepared for a surprise inspection by the Department of Labor. The DOL can show up at an employer’s workplace unannounced and demand to tour the facilities, inspect documents and interview witnesses.
-Analyze whether there is insurance coverage for any potential wage and hour liability or costs of defending any claim or participating in an investigation of wage and hour issues. Understand that most general liability insurance policies exclude coverage for employment-related claims and that most employer practice liability insurance (EPLI) policies exclude coverage of FLSA claims.
What happens if you don’t get this right?
Failure to properly classify and compensate employees can result in:
• Lawsuits filed by the Department of Labor and/or employees (individually or part of a class action lawsuit).
• Reimbursement to the employee for the income lost due to the improper classification.
• Criminal prosecution and fines up to $10,000.00 or $1,894.00 per violation.
• Imprisonment (after second conviction for improper classification).
It is important to consult with a Human Resource specialist regarding employee classification and compensation to ensure compliance with the new rules. If you have questions or need help, we’re here and ready to do whatever it takes to get you in compliance. Contact Dan D’Alio at 330-856-9770 or email@example.com.