Employers, especially in hospitality, have now digested the recent Department of Labor proposal to increase the earnings thresholds for exempt workers and highly compensated employees (HCE). This means hoteliers are revisiting their compensation strategies for salaried employees.
The Proposed Details
The biggest focus for many hoteliers is to determine how this changes their compensation strategy for their property level salaried workers. If adopted as proposed, the DOL will increase the minimum salary level under the "white collar" exemptions from the current $684 per week ($35,568 annually) to $1,059 per week ($55,068 annually).
In other words, employers may need to give raises to salaried team members in order to avoid reclassification into eligibility for overtime compensation.
While we know there will be varying camps of support as well as stiff opposition for this proposal and history has shown us that last minute changes can occur, HR professionals should be taking this seriously. The DOL last raised the threshold in 2019, but before that had not implemented any increases after 2004.
Salary Calculation Methodology
Although they directly reference $1,059 per week, $55,068 annually, the actual methodology is referenced and explained over and over throughout the 267-page proposal. The DOL proposes to use the 35th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region to set the actual minimum salary level.
This should be of interest to employers because, yes, that is currently $1,059 per week, $55,068 annually but is projected to be higher in the 4Q of 2023, even higher in 2024, which means it could be $59,285, $60,209, or higher! Check out footnote 3 of the proposal. If you are crunching numbers, it is advised to do so at varying levels.
The proposal also contains automatic updates to the standard salary level every three years. The Department is not proposing any changes to the salary basis or duties test requirements in this rulemaking.
Measuring the Impact
At Aperture, we aren’t waiting until the final rule is released to start our analysis. We have begun the process of measuring the impact this could have so we can develop solutions to protect our owners’ investment while ensuring that our valued team members are appropriately compensated. This process includes a complete review of wages of every salaried exempt team member and examination of our total compensation strategy.
When evaluating compensation, we analyze total rewards, benefits, incentives, and other compensation factors to include non-monetary perks. We will study the impact of the increase at several increments of possible escalation. To be thorough, we will also review the effect on compression of wages and pay parity. This will allow us to be fully informed when the time comes to make decisions on compensation or potential classification changes for certain positions.
Communicate Clearly
Your employees will hear of this in some fashion so you will want to inform your front-line managers. Communication is always critical, especially when team members hear about possible changes to their salaries. To reduce the possibility of misinformation, you want to be prepared to answer questions and assure your teams that you are reviewing, continuously monitoring, and will provide updates.
The 60-day comment period is open until November 7, 2023. You can find the proposed rule here: https://www.regulations.gov/document/WHD-2023-0001-0001.
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