U.S. Department of Labor Announces Minimum Weekly Wage Increase

minimum weekly wage increaseDOL announces minimum weekly wage increase for salaried workers

As speculated on our BusinessLaw blog, the U.S. Department of Labor recently made a major announcement to increase the minimum weekly wage level for salaried workers eligible for overtime pay. According to National Law Review, as of Dec. 1, companies across the U.S. will face significant changes in payroll. In fact, the salary threshold will increase from $455 to $913 per week, which breaks out to nearly $47,500 per year – up from close to $24,000 annually.

So how do companies adjust? There will likely be a jump in wage and hour lawsuits, which have been on the rise over the past decade. This increase could not only significantly increase the damages and attorney’s fees for defense expenses, but these costs can also exceed the amount of wages in dispute. These extra expenses will come as the result of claims available under the Fair Labor Standards Act.

With these increases in potential liabilities coupled with the increases in overtime pay, companies will need to adjust their compensation levels.

Adjusting to the minimum weekly wage increase

Companies with workers that will be impacted by the new overtime pay rules will need to figure out how to adjust their total compensation. This may include a number of different options, most notably increasing salary levels for those workers so that they reach exempt status.

For many companies, this might not be a feasible option. These firms may decide to convert salary workers to hourly levels to be divided by the standard 40 hour work week. Another option is converting workers from salary to hourly, and then dividing this by the total hours worked in a week.

Another alternative would be to convert workers from salary to fluctuating workweeks. This would effectively enable a company to pay an employee for only hours worked. Some weeks would be less hours, while others would be more. 

Finally, an option that companies have is to offer non-discretionary bonuses or commission packages for workers. The new regulations allow these companies to pay up to 10 percent of the new minimum salary amount. This would effectively allow a company to have a worker under non-exempt status but compensate the employee for overtime pay under a commission structure for more work on fewer hours.

Bottom line

Employers need to determine the economic impact of the new rules on executive, administrative and professional-level employees within their organizations. There are alternatives for companies to convert their workers to exempt statuses or shift their compensation schedules for fear of incurring significant increases in overtime pay.

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Frank Brunetti has been practicing law for over thirty years in the areas of estate and wealth preservation, tax planning for business entities and complex tax matters. He is admitted to the New Jersey and New York Bars as well as the United States Tax Court. Mr. Brunetti provides representation in federal and state tax matters, IRS controversies, estate and business planning and guidance for the preparation of wills and trusts as well as the administration of estates. For more information, please visit Frank Brunetti's full biography at Scarinci Hollenbeck

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