Is it true “rising tides lift all ships”? – Salaries set to increase

You may have heard the ol’ sayin’ “a rising tide lifts all ships”. This phrase has been used to describe how one event benefits those not directly connected to the event. Well this event is not necessarily going to be a benefit to employers, maybe employees.

In recent weeks the administration raised the minimum wage for government contractors to $10.10 per hour. While this may not have an immediate impact on private employers the door has been opened. Most recently businesses were given notice that the minimum weekly amount for exempt employees is going up, get ready.

Currently an exempt (salaried) employee must pass the “duties test” to justify the employee being paid a salary. The term “exempt” is used for these employees that are exempt from overtime. To be paid as an exempt worker the employee must fit in one of the “exempt” categories. The categories are:

  1. Executive Exempt
  2. Administrative Exempt
  3. Professional Exempt
  4. Computer Professional
  5. Highly Compensated
  6. Outside Sales

Each one of these categories has its own “duties test”. If an employee meets all the “duties” for that specific category they can be classified as “exempt”, or paid a salary with no overtime. The current rules require a qualifying salaried worker be paid $455 per week or $23,660 annually. It is anticipated that the administration is going to direct the Department of Labor to double the weekly base amount to $910 per week or $47,320 annually. New York and California have taken steps previously to increase the minimum salary. Both of those states have a base over $600 per week.

In addition to the increase in the minimum weekly base, it is anticipated the administration will request the Department of Labor change the “duties test” for the Executive Exempt. Currently to qualify as an executive exempt 50% of the duties must be management duties. With that guidance it is recognized that a manager may be involved in non-management duties during the day, but is still managing. As an example, a restaurant manager my work in the kitchen during the lunch and dinner rush, but while they may be cooking and chopping it has been assumed they are still managing the restaurant and its employees.

Under the new guidance it is anticipated the new rules will not allow this assumption of management while preforming non-exempt duties. The new rules will attempt to measure actual time performing specific duties. This new interpretation could have a huge impact on employers such as restaurants and service companies.

A recent analysis reported that this type of adjustment would not impact a significant number of employee’s; the article stated only 6 million workers would fall under the new guidelines. While this estimate may accurately reflect the direct impact, the” ripple” effect will impact millions more workers. If a company is mandated to raise the wages of the lower paid salaried employees they will be forced to raise wages for all workers to keep the correct balance. In addition many employers will be forced to move pervious “exempt” employees to “non-exempt” which could increase the amount of overtime paid by the company.

Here are some steps companies can take to limit the impact this change may have on their payroll.

  1. Verify that all current employees being paid as “exempt” workers meet the “duties test”.
  2. Change job duties of workers that are marginal to meet the “duties test”.
  3. Evaluate the increased overtime that may be payable if a worker is moved to hourly also referred to as “non-exempt”.
  4. Adjust staffing needs to eliminate overtime if possible.
  5. Develop a strategy to manage overtime. Tracking workflow and improving internal processing can have a direct impact on hours worked.

If you have questions regarding the “duties test” for all “exempt” categories drop us a line and we will be happy to send some guidance. Email gary@illuminaregroupinc.com.

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