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New Federal Salary Threshold for Exempt Classification

As of January 1, 2020, the federal salary threshold for employees to qualify as exempt from overtime will increase from $455 per week ($23,660 per year) to $684 per week ($35,568 per year). For employees to qualify under the Fair Labor Standards Act’s (FLSA) “highly compensated employee” exemption, the minimum salary threshold will increase to $107,432 per year.

As a reminder, for an employee to be classified as exempt, they must meet both the minimum salary requirement and the “duties test.” This new law does not make any changes to the duties test.

It also does not affect employees in California, where the exempt salary threshold is higher.

California employers must comply with the higher thresholds for their employees working in the state. The minimum annual salary for a managerial, administrative, or professional employee in California to be classified as exempt is $49,920 ($45,760 for employers with 25 or fewer employees). Also, California does not recognize the “highly compensated employee” exemption.

Another difference is that the federal law allows for bonuses, commissions and incentives that are paid at least annually to be counted toward the minimum salary requirement. California makes no such provision. And California’s duties test is stricter than the duties test under federal law. Here, an employee must spend more than 50% of their time in each workweek performing exempt duties to qualify as exempt from overtime.

If you have employees outside of California now is the time to review your compensation plans for exempt employees and make any changes needed to comply with the new federal law by January 1.

If you only have employees in California, it’s also a good time to review employee compensation and classification to ensure you are complying with California law.

Please reach out to me at michelle@connecttohr.com if you need help reviewing employee classifications.

Creating Your Compensation Plan

Last time we talked about establishing your pay philosophy. Once you’ve done that and have committed it to paper (to be periodically updated) the next step is to understand the market so you can develop pay rates for each of the positions you identified in your workforce plan.

There are several ways to do this. You can speak to other people within your industry to learn what they are paying, or you can search sites such as Salary.com, Glassdoor, or the Bureau of Labor Statistics for salary information, or you can use a salary survey such as PayScale. As you look at salary information, determine a salary range to use. You could use the median or 50^th percentile, or you could establish a range, for example 25^th to 75^th percentile. This will help you decide on your own pay ranges. And remember, you need to consider your budget as you are making these decisions.

Make sure that your compensation plan fully complies with state and federal laws and regulations. This includes classifications such as exempt and non-exempt, overtime pay, independent contractor regulations, required benefits such as health insurance and Worker’s Compensation, minimum wage laws, etc.

Another component of your compensation plan is “pay for performance.” How and when will you reward employee performance? Will you use rating and rankings to determine salary increases or will they be determined purely on the basis of individual performance? Will performance reviews and salary increases happen in concert or separately? Will you have a discretionary fund for employee incentives and what are the criteria for those awards?

Once you’ve developed your compensation plan, it’s important to communicate it to your employees. Explain that salaries are based on market rates, pay philosophy and employee performance. Discuss total compensation – that is, base salary, incentives and benefits. Employees who have a clear understanding of how they contribute to the success of the organization and who feel recognized for that contribution are more engaged and motivated. Everyone wins.

If you need some help understanding the market for your job positions, or selecting a salary survey to use, please contact me.

Compensation Step One – Developing a Pay Philosophy

For the past couple of blogs, I’ve been talking about various aspects of HR planning and the importance of being proactive vs. reactive around people-related activities. One of the most important activities to plan for is compensation. What have you budgeted for compensation, and how will you allocate it for merit increases and adjustments needed to attract and retain the skills identified in your workforce plan?

Step one is clarifying your pay philosophy. A pay philosophy is a set of guiding principles that identifies compensation priorities, and supports organizational values and goals. It explains why the company makes the decisions it does about employee pay, and creates a framework for consistency across the organization. Although a pay philosophy will differ from company to company, all are aligned in the goal of attracting, retaining and motivating the best talent.

Some factors to consider in creating your pay philosophy are company size, financial position, level of difficulty in finding needed talent, the industry, and market salary data. An example might be that you know you have to pay a starting salary slightly above the market in order to attract the right people. Or, your financial position is such that you have to pay slightly below market, but make up for it with a more generous vacation benefit.

As you define your pay philosophy, be sure to consider total compensation – base salary, incentive pay, and benefits. Examples of incentive pay are bonuses, commissions, and profit sharing. Benefits may include medical, dental, and vision insurance; life insurance; paid vacation; leave policies and 401(k) programs. Some companies choose to match 401(k) contributions up to a certain amount, which is an attractive benefit. Recognition is another factor to consider, especially from the perspective of motivating employees. Recognition can include cash awards, or non-cash awards such as sports event tickets, travel vouchers or other “thank you” gifts.

Once you’ve defined your philosophy, commit it to paper and review it periodically to assess how it’s working and identify any changes needed based on changing company circumstances, the market or the economy in general.

If you need more information or need a sounding board as you create your philosophy, please contact me.

Achieving Growth Through Effective Workforce Planning

In my last blog, I discussed the importance of taking some time – now – to plan for the various HR activities that need to occur throughout the year. A good place to start is with your workforce planning. We all want to grow our businesses. But without a clear understanding of the knowledge and skills that will be required to move the business to the next level, this is a difficult goal to achieve.

Workforce planning helps consider the size, type and quality of the workforce you will need to achieve your company objectives. It helps you strategically recruit, hire and develop employees to ensure that you have the right people in the right place at the right time.

Workforce planning can include operational considerations such as work schedules and hours, distributing talent among divisions and departments, identifying functions no longer needed and reassigning workers, and maintaining employee engagement. The more strategic side of workforce planning looks at identifying skills sets needed as the company grows and changes, transferring company knowledge as employees leave, and defining recruitment strategy for future workforce needs.

An effective workforce plan keeps talent in the pipeline for when you have an immediate need. It improves your bench strength by helping you identify and prepare future leaders. And it ensures that you are ready for future opportunities.

Start by defining job roles: the work that needs to be done, and the skills and competencies required for that work. If you’re starting from scratch, you may want to use an employee who is currently doing the work successfully as a model to identify required skills, experience and behaviors, but remember that a job should be designed around the role requirements, not a particular person.

Once you’ve defined and designed the critical job roles to meet your needs today, spend some time thinking about skills/job roles you may need in the future. This will be helpful in identifying skill gaps, and determining whether it makes more sense to hire for those skills gaps or to develop current employees to fill the gaps.

Next, create formal job descriptions. Job descriptions should be reviewed and updated at least annually, and whenever someone leaves. Job descriptions should be as detailed as possible. This will help you recruit the right person for the job. It will also give you a legally defensible document, or ‘benchmark’ for performance management. Be sure your job descriptions include at least the following:

Job title
Job location
A summary of the job objective/purpose
Scope of responsibility
Reporting relationships
Qualifications required (experience, skills, competencies)
Key functions and duties (including standards)
Physical requirements of the job

Please contact me if you need help creating your workforce strategy.

Now is the Time for Your HR Planning

As the New Year gets underway, this is the perfect time to do some planning for the various HR activities that need to occur throughout the year. If you haven’t already, I highly recommend that you get out your calendar to schedule the following HR activities and begin developing a plan for each of them. It’s very easy to get so caught up in day-to-day operations that these activities sneak up on you, and then are either delayed, not done well, or missed entirely.

Here’s a framework of common activities you can start with. You may have additional ones, based on your business.

Company goals. What are you planning to/need to accomplish this year? This is important in driving your planning and decisions for all HR activities. And also, in driving individual and team goals.

Workforce planning. To accomplish your goals, what are the skills, knowledge and number of employees you’ll need? Where are the gaps in your current workforce? What plans do you have in place for upskilling current employees to meet new demands of the business?

Budgeting for headcount. If you’ll be adding to your workforce this year, what’s your budget?

Job descriptions. Job descriptions should be reviewed at least once a year or and/or whenever a job position’s responsibilities change. As new positions are created job descriptions need to be created. Up-to-date, accurate, and detailed jobs descriptions as essential for effective hiring, employee development and performance management.

Employee Handbook. Your Employee Handbook should be thoroughly reviewed and updated annually, with periodic updates as new laws are implemented. When was the last time you updated your Handbook to reflect new company polices or employment laws?

Open enrollment. Even though this activity typically occurs in the fall, it’s important to plan for it well in advance, especially if you are thinking about changing brokers or adding or changing benefits.

Performance reviews. Waiting until the performance review date to manage performance is a disservice to employees and to the company. Make performance management an ongoing activity and then plan well in advance for the annual or semi-annual performance review.

Salary increases. What is your budget /criteria for salary increases? What surveys will you use to determine current market data?

Employee surveys. Giving employees the opportunity to provide feedback (and then doing something in response) is important in keeping employees engaged and motivated. Questions need to be thoughtfully prepared and relevant. You also need to consider how you will administer the survey (paper, online, focus groups…) and develop a plan for reviewing, communicating and implementing any changes resulting from the survey. Don’t conduct a survey unless you plan to do something with the information!

The most important thing is to be proactive rather than reactive. It’s much better to carve out some time now – as busy as you might be – to plan for these items ahead of time. Leaving it until the last minute or overlooking an activity altogether can be very costly in time, money and employee morale.

“If you fail to plan, you are planning to fail.” – Benjamin Franklin

5 Ways to Attract and Retain Millennials

Millennials (those people born between 1980 and 2000) are now the nation’s largest living generation, surpassing Baby Boomers, according to the U.S. Census Bureau. In fact, it’s projected that by 2025, Millennials will make up 75% of the workforce. This means that finding ways to effectively attract and retain them will become essential in keeping the wheels of your business churning!

Here are some tips for recruiting and keeping employees from this now-dominant generation.

Use social media. To attract Millennials, you need to go where they are. And that’s on social media. A recent article in Inc. Magazine said 66.7% of first time job seekers use social media to look for work. Make sure your recruiting messages present your brand well, and are mobile friendly. Anyone with a family member in this age group knows that their smartphone is a key source of information and communication. Use the latest tools available, such as LinkedIn’s recruiting tools and video interviewing.

Give them insight. Millennials want to work somewhere that provides stability and financial security. A collaborative environment is also important to them. They care about company culture. Be sure your website and your social media presence convey a sense of what it’s like to work at your company. Think about the images and content on those sites – do they accurately tell the story of who you are?

Show you care. According to a Deloitte survey, 60% of Millennials say they chose to join their current employer in part because of the organization’s sense of purpose. Do you give back to your local community? Include that on your website and in your recruiting materials and messages. Also, consider giving employees time off to volunteer or matching their monetary donations.

Develop and grow them. Millennials are motivated by a competitive compensation package, professional development, and opportunities for advancement. Give them a clear vision of their career path and how they can advance. Provide training and mentoring opportunities. They also prefer leaders who empower their employees, and who give them frequent, constructive feedback.

Provide flexibility. Millenials favor work/life balance. They want to work hard and get ahead, but they also want to have enough time to pursue their personal interests. Consider offering flexible work schedules.

Matching your recruitment efforts to the needs of Millennials will help ensure that you keep your candidate pipeline active!

Please contact me if you need more ideas or help in implementing any of these.