At the end of April, the Department of Labor informed us of the final decision around increasing the salary threshold for exempt jobs. Employers need to determine the impact on their employee population and develop a plan of action. The primary decision is whether employees making under the salary threshold who are currently exempt from overtime will become non-exempt, and therefore eligible for overtime, or whether their salary will be increased to meet or exceed the new threshold, assuming they still pass the duties test.

Have you thought about how salary surveys can help you make these decisions?

Determine competitiveness

Of course, there are many things to consider but first you can take a look at how the employee’s current pay compares to your target compensation in the salary survey. For example, let’s say you have an exempt Data Analyst I making $42,000 a year. When you look at the pay data at the fiftieth percentile for the representative labor market, you see that median base salary for this role is $56,000. That should cause you to question a few things:

• Is this person actually doing the duties of a Data Analyst I, as described in the survey? Do we have this person miscategorized?
• Are we simply underpaying this employee relative to the market? How is this employee positioned within our salary range and is that commensurate with performance and experience?

It may be time to increase this person’s pay to make them more competitive in the labor market. Perhaps it’s time for this role to be regraded within our salary structure to better reflect a market range. Conversely, it might be that the title and responsibilities are not accurately matched to the survey and, in fact, that employee should be reclassified as non-exempt and be eligible for overtime. But, competitiveness is certainly not the deciding factor. By increasing pay and keeping someone exempt, you would also need to ensure that they still pass the duties tests laid out in the Fair Labor Standards Act (FLSA).

Understand prevalence of overtime eligibility

Although this shouldn’t be used as ‟the answer,” many salary surveys include a field or two on how companies typically classify a job — exempt or nonexempt — and whether or not the job is overtime eligible. Since it’s a less readily available field, not all submissions will include an answer. Additionally, what’s reported by other employers is just a consideration and should not be used to determine the classification for the job in your organization.

Let’s look at an Administrative Assistant making $48,000 a year who is currently exempt in your organization. The pay data in your salary survey might confirm that this person is paid competitively but the survey may also indicate that the majority of survey participants classify this job as non-exempt or overtime eligible. If the majority of survey respondents classify this job as non-exempt, use this as a nudge to validate the job duties and your stance on the FLSA classification for this role. Remember, it’s not just a salary threshold, there is a duties test that needs to be applied to determine if a job is exempt from overtime.

Assess your structure

Changing the classification of an employee from exempt to non-exempt and overtime eligible and increasing pay to meet a salary threshold will likely create pay compression. The difference in pay between the jobs at a higher level, even a supervisory level, and the job that is re-classified, will be reduced. This creates questions about career advancement and potential earnings opportunities. Often, the overtime eligibility of front-line jobs results in higher earnings than the supervisor or manager of these roles. As a result, it’s hard to entice employees to move into those management roles and lose overtime earnings.

Referencing valid salary survey data will help you determine whether pay adjustments are warranted for individual jobs. Salary survey data also will assist in measuring the effectiveness of your salary structure and how you have positioned your jobs within it.

Take a breath and ask for help

Keep in mind that fixing all of this in year one is a tough feat. It will likely take a few years to address the ripple effects caused by the new overtime ruling.

To help you navigate this change effectively, we are offering a 30-minute call to discuss the implications of the new overtime ruling for your organization and explore strategies for compliance. During this meeting, we can:

• Review the key provisions of the new overtime ruling and how they may impact your organization
• Review data from Mercer’s survey databases on how this new ruling will impact your industry
• Discuss strategies and best practices for compliance and risk mitigation

Call us today at 855-286-5302 to set up your complimentary meeting.