“Monumental changes” to the Fair Labor Standards Act (FLSA) will make more than 4 million currently exempt employees eligible for overtime pay, according to the Society for Human Resource Management (SHRM). Employers must comply with these changes by Dec. 1, 2016.
The FLSA overtime rule determines whether employees are eligible or exempt for overtime pay. Because of their rate of pay and type of work that they do, exempt employees are not eligible for overtime pay for hours worked more than 40 in a workweek. Nonexempt employees must be paid time and a half for any hours worked more than 40 in a workweek.
The rule change extends overtime protections to 4.2 million workers who are not currently eligible under federal law, according to SHRM. Under the rule, the annual salary threshold for exempt positions will jump from $23,660 to $47,476 (or from $455 to $913 per week). There will be no change in the duties test used to determine whether employees earning more than the salary threshold must be classified as nonexempt from overtime, including the tests for meeting the executive, administrative and professional exemptions.
The Department of Labor also will adjust the salary threshold every three years. Based on current projections, the salary threshold is expected to rise to more than $51,000 with its first update on January 1, 2020.
Michael J. Eastman, counsel in the law firm NT Lakis LLP in Washington, D.C., told SHRM that business owners should “assess their workforce to determine the extent to which any changes will need to be made in order to remain compliant after the Dec. 1, 2016, effective date.”
“The most immediate focus will naturally be on identifying employees currently classified as exempt who earn less than the new minimum salary level of $913 per week,” Eastman wrote in a white paper for SHRM. “This should include all currently exempt employees with salaries lower than $913, even if they work part time and their full-time equivalent salary would be above the threshold because the DOL’s regulations only consider actual salary paid for purposes of the exemption.”
Other employees could be affected, too, he cautioned.
“Employers may also want to assess the impact on employees who have the same or similar job duties but are paid above the new minimum salary threshold,” Eastman wrote. “Raising salaries for some employees also could create salary compression issues concerning other employees who are more senior, and employers may wish to provide additional salary adjustments to those employees. Salary compression issues may be compounded when considering the impact of regular increases to the minimum salary level in the years ahead.”
After identifying the affected workers, employers will need to “estimate the extent to which they work more than 40 hours in a week and how many hours they typically work,” Eastman continued. “For many employers, this calculation will be difficult because it may be hard to determine how many hours employees are working offsite.”
Employers with employees affected by the changes have several options available, according to Eastman: reclassify employees, raise the employee’s pay to retain the exemption or restructure workforce or specific jobs (e.g. “remove some responsibilities from a group of employees so that they can complete their jobs in 40 hours per week while being classified as nonexempt.”)
Twenty-one states and the U.S. Chamber of Commerce have asked a Texas court to bar the overtime rule from taking effect, arguing that the Department of Labor (DOL) does not have the authority under the FLSA to set a salary level for exempt employees. A decision is expected this week.
Despite that pending case, and the recent election of Donald Trump, who would likely oppose the rule, business owners should be prepared for the Dec. 1 deadline, legal and HR experts have told
“Absent an intervening injunction before Dec. 1, much of the damage will be done by the time Mr. Trump takes office,” Robert Boonin, an attorney with Dykema in Detroit, told SHRM.
SHRM has many resources available online, including advice on how to prepare your business and communicate changes with employees, along with details on finer points of implementation as they relate to topics such as incentive pay and nondiscretionary bonuses.
