This year April may be “busy season” for you another reason — the U.S. Department of Labor (DOL) is on the verge of finalizing a proposal that will make more of your employees eligible for overtime (OT) premiums or require salary increases for a significant number of management employees. The DOL intends to significantly raise the exempt salary threshold from about $35,000 to about $55,000 (or above) — meaning your employees will need to earn more than that to be even considered exempt from OT pay. This change, which would impact 3.6 million employees nationwide, is set to be finalized in April and take effect by early summer. This rule impacts CPAs both as employers (i.e., you may need to increase the salaries of your managers) and as trusted advisors to your client to alert them regarding this important development. What are the top seven considerations to prepare for a final rule?

1. Review pay practices and prepare for compliance. Under the federal Fair Labor Standards Act (FLSA), employees generally must be paid an overtime premium of 1.5 times their regular rate of pay for all hours worked beyond 40 in a workweek — unless they fall under an exemption. One of the criteria to qualify for an exemption is earning a weekly salary above a certain level. Currently, the salary threshold for exempt employees is $684 per week ($35,568 annualized). The DOL’s proposal, if finalized in its current form, would raise the threshold to $1,059 a week ($55,068 annualized) or higher depending on cost-of-living adjustments. That’s a big jump that will require some planning if you have exempt employees who earn less than the proposed amount.

2. Work through your decision tree. Start by creating a list of your exempt employees who currently earn between $35,500 and $60,000 per year. You will have to decide whether to raise their salary to meet the new threshold or convert them to non-exempt status. If you decide to convert them, there are many considerations to take into account, and you should work with legal counsel. Additionally, you may want to start tracking their actual hours worked now to help you understand the potential impact of converting to non-exempt status, as those individuals will need to be paid overtime.

3.  Consider the impact on employee morale. Reclassifying employees to non-exempt could have a negative impact on morale. Many employees associate prestige with being classified as an exempt-salaried employee, they like the flexibility that comes with being salaried, and they don’t want to track and record their hours worked. Therefore, employees may view a switch to non-exempt status as a demotion. 

4. Plan to provide advance notice of changes. In addition to developing communications focused on employee relations and morale, you’ll want to provide a written communication to each employee about the specific changes to their compensation and what new responsibilities come with the changes, such as timekeeping and record keeping.  

5.  Review your policies on company equipment and personal devices. Do you have different policies for exempt and non-exempt employees when it comes to issuing company equipment and using personal devices? Exempt employees may have more leeway to use company laptops or their own personal devices — such as smartphones—to conduct business while traveling or outside of their regular office hours.

6. Develop a training plan for managers and newly non-exempt employees. We highly recommend that you provide detailed training to newly reclassified employees and their managers prior to the changes taking effect. The specifics may vary from business to business, but you’ll want to cover scheduled hours, OT approval policies, timekeeping procedures, rules about meal and rest breaks and more.

7.  Ensure exempt employees meet the duties test. Besides the salary test, exempt employees also need to satisfy certain duties requirements. Neither their job title nor job description alone determines whether an employee qualifies for a white-collar (or any other) exemption. This is a good opportunity to ensure they meet these standards as well.