Estimating Compensation Costs for Salaried Exempt Employees

Effective December 1, 2016, new regulations from the US Department of Labor will raise the minimum salary for most employees exempt from the overtime requirements of the Fair Labor Standards Act (FLSA) from $455 per week to $913 per week. As a result of these changes, it is estimated that more than 4 million exempt workers will become eligible for overtime pay.

Employers have a few options for compensating employees who are currently classified as exempt but are paid a salary of less than $913 per week:

  • Increase their weekly salary to $913 or higher to retain their exempt status; or
  • Reclassify them as nonexempt and pay them overtime for any overtime hours worked; or
  • Reclassify them as nonexempt, but convert them to hourly employees and set their hourly rate at a level that factors in anticipated overtime costs and is intended to keep their overall pay constant.

This tool can be used to help an employer estimate the costs of each option.

The tool is based on an individual workweek because overtime for nonexempt employees must be calculated each and every workweek. An employer should avoid extrapolating annual compensation costs from weekly estimates for salaried employees unless the number of hours worked each workweek is truly constant.

Bear in mind that this tool is meant only to give a rough estimate and does not take into account several factors that may alter an employee's overtime, such as alternative work periods.

An employer should always consult with counsel before finalizing its pay practices.

Step 1. Enter the Employee's Weekly Salary

If the employee is paid on a basis other than weekly - for example, biweekly, semimonthly or monthly - that salary must be converted to its workweek equivalent. For example, if the employee is paid monthly, multiply his or her monthly salary by 12 and then divide by 52 to determine the workweek equivalent.

The salary entered should be the employee's gross salary, before taxes and any other deductions.

To obtain a more accurate estimate, include any compensation that must be included in the regular rate of pay, such as nondiscretionary bonuses, commissions, shift differentials, etc., that is attributable to the workweek in question.

Step 2. Enter the Number of Hours for Which the Employee's Salary Is Intended to Compensate

A salary may be paid to a nonexempt employee as compensation for a fixed number of hours per week or for all hours worked.

Fixed Number of Hours: An example of a salary for a fixed number of hours per week would be an employment agreement that specifies that the employee will work 40 hours per week for an agreed-upon salary of $600 per week, or an employment agreement that specifies the employee will work 45 hours per week for an agreed-upon salary of $800 per week.

All Hours Worked: An example of a salary for all hours worked would be an employment agreement that specifies a salary amount without mention of the number of hours per week that the employee is expected to work. For example, an employee may be paid $500 per week whether she works 30, 40 or 50 hours in the week. When an employee is paid a salary for all hours worked, the salary amount does not change when the hours worked in the workweek changes.

If the employee is paid a salary for a fixed number of hours per week, enter that number below.

Or if the employee is paid a salary for all hours worked, regardless of the number of hours actually worked, click the button below:

The employee is paid a salary for all hours worked

Step 3. Enter the Number of Hours Actually Worked by the Employee

Add up all of the hours worked by the employee during the workweek, rounded up to the nearest hour. Remember that hours worked can include not just time spent performing key job functions but also time spent doing other things like waiting on call, attending training or putting on required safety gear.

Step 4. Estimate the Costs of Different Options

Click the button below to estimate the costs of different options.