Unless blocked by federal courts, on January 1 the minimum salary required to claim the white-collar exemptions from the Fair Labor Standards Act’s overtime provisions increases to $1,128 per week, or $58,656 annually. Some employers (especially nonprofits) cannot afford to pay this additional salary, and need to consider alternatives before the new salary level takes effect. For most of these employers, this means converting current salaried exempt workers to non-exempt status, keeping track of hours worked, and paying overtime when the employees work more than 40 hours in a given workweek.

Affected employers have several alternatives for addressing this transition. First, they can convert the exempt employees to non-exempt and place tight administrative controls on overtime hours worked. A number of employers have advised us that their currently exempt employees are resistant to becoming hourly and want to maintain a guaranteed salary. The FLSA allows companies to classify employees as salaried non-exempt, if they track hours and pay overtime. In some situations, the employer will set the salary lower than its current level with the expectation that the employee will make up the difference in anticipated overtime work.

The other major alternative involves implementation of a specialized pay plan, most commonly the fluctuating workweek system. This pay method guarantees the employee a weekly salary, but only pays half-time overtime (instead of time and one-half) with that rate determined by the total hours worked each week. While fluctuating workweeks can result in considerable overtime savings, not all employees qualify, and administering this pay plan can require significant resources.

Employers facing reclassification decisions should plan now for changes that may be needed by the end of the year. While the above financial considerations are key, determining the impact of such changes on employee relations may be equally important. If employees view changes necessary to comply with the new salary level as a takeaway, employers could have difficulty retaining those workers or attracting alternative employees.

For more information, please contact me or your regular Parker Poe contact. You can also subscribe to our latest alerts and insights here.