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.