If you are not already aware, as a leader in your organization you need to be aware that the United States Department of Labor (DOL) has proposed regulations that would modify certain provisions of the Fair Labor Standards Act (FLSA). Specifically, if the proposed regulations are published the minimum salary requirement for certain employees to be exempt from overtime compensation would increase from $455 weekly ($23,660 annually) to $970 weekly ($50,440 annually). The DOL has also proposed automatic increases to these salary thresholds. Further, the salary threshold to be considered a Highly Compensated Employee under the duties test has been proposed to increase from $100,000 to $122,148 indexed to the annualized value of the 90% percentile of weekly earnings of full-time salaried workers.
No modifications to the duties tests themselves have been proposed. However, after receiving comments the DOL could include modifications to the final rule. The duties test states that to be classified as an exempt employee an employee’s primary job responsibility must fall under one of the following exemptions: Administrative Employees, Executive Employees, Professional Employees, Outside Sales Employees and Highly Compensated Employees.
So what does this mean to you, in practical terms? This means that if these proposed regulations are published AND you have employees classified as exempt under the Administrative Employee, Executive Employees, Professional Employees and Outside Sales Employee exemptions earning a salary less than $50,440 annually, you will either need to:
- Increase the salary of those employees to at least $50,440 annually, or
- Reclassify those employees as non-exempt, pay them an hourly rate, and pay them overtime for hours worked in excess of 40 hours in any given week (keep in mind also that your state may have minimum wage and overtime requirements that exceed the requirements of the FLSA)
This also means that if you have any employees classified as exempt under the Highly Compensated Employees exemption earning more than $100,000 but less than $122,148, you may need to:
- Increase the salary of those employees to at least $122,148 annually, or
- Reclassify those employees as non-exempt, pay them an hourly rate, and pay them overtime for hours worked in excess of 40 hours in any given week.
Final rules may be published by the DOL as early as May of 2016, and if published it is expected that employers will have 60 days to comply.
So what should you do?
- Prepare by performing an audit of your employees classifications and compensation structure. This would be a great time to review classifications and make sure that all of your employees are properly classified under the FLSA.
- Assess how these proposed modifications could impact your organization financially and prepare accordingly.
- Talk to your employees and hear from them. What are there concerns to any changes that could be made? Always remember, weigh-in produces buy-in.
- Take this opportunity to assess how your compensation structure is set-up to attract and retain talented employees in a fair and consistent manner.
We hope this helps stir-up a conversation within your organization and prepares you for any changes that may be coming. If you need assistance navigating Human Resource related matters or if you are interested in discussing outsourcing your Human Resources function, please feel free to give us a shout.
This blog post is intended for informational purposes only. Our hope is to provide you all with value by keeping you informed. We hold no opinion on these proposed changes.