Some 5,000,000 white-collar workers who are currently exempt from overtime compensation may soon be entitled to such pay. The effect on your payroll could be significant if changes to the Fair Labor Standards Act (FLSA) are allowed to take effect, per a recent proposal from the U.S. Department of Labor (DOL). The impact will arise from updates to the salary level required for exemption and simplified guidelines for how to identify non-exempt employees. Here’s what you need to know.
The Current Overtime Rules
Currently, employers are required to pay all employees covered by the FLSA time-and-one-half for any hours worked in excess of 40 hours in a single workweek. Bona fide Executive, Administrative and Professional employees (otherwise known as EAPs), however, are exempt from the minimum wage and overtime requirements. To qualify for the exemption, EAP employees generally must meet tests regarding their job duties and be paid a salary of at least $455 per week ($23,660 per year). Certain other highly compensated employees (HCEs) may also be exempted from FLSA’s minimum wage and overtime requirements. This HCE Exemption kicks in if such employees’ total annual compensation is at least $100,000, the employee customarily and regularly performs one or more duties of an EAP, and has a primary duty that includes performing office or non-manual work.
What the Changes Would Mean
The proposed rule changes would qualify a greater number of higher income employees to become overtime eligible. In fact, the updated rules would more than double the minimum salary necessary for a worker to be classified as exempt from the FLSA overtime regulations. According to projections, employees earning up to $970 per week ($50,440 per year) would qualify for overtime if the rules go into effect in 2016 as proposed. The DOL also proposes to increase the HCE Exemption compensation level to $122,148 per year. Going forward, DOL has proposed a mechanism that automatically updates the overtime exemption salary and compensation thresholds annually to prevent them from becoming outdated between rulemakings. In addition, the proposed rule changes would include nondiscretionary bonuses in calculating the standard salary threshold.
The Bottom Line for Employers
As an employer, you may confront significant legal and operational consequences if the proposed rule changes become final. The most complex decision will require you to calculate the relative effects of raising salaries of currently exempt employees to the new threshold versus the likely impact of leaving their salaries at non-exempt levels and paying time-and-a-half for overtime. You should consider developing a plan now to monitor overtime hours for employees who may no longer be exempt. Such data will be essential for you to make informed compensation decisions that serve the financial interests of your business and keep you in compliance with the new rules. If you would like more details about the nuances of the proposed rules or if you want to discuss your options, please contact me at (240) 778-2307 or by e-mail at email@example.com.