A little over a year ago, President Obama signed a Presidential Memorandum directing the Department of Labor (DOL) to update the Fair Labor Standards Act (FLSA) regulations that define the conditions under which white collar workers are exempt from having to be paid overtime. The DOL published the proposed rules on July 6, 2015. It was expected that the DOL would publish the final rules in July 2016, but we have been hearing that they may be published earlier than July.
The proposed rules would increase the minimum salary thresholds required for white collar workers to be treated as exempt from overtime requirements. The table below compares the current thresholds to the new proposed thresholds.
|Threshold Description||Current Threshold||Proposed Threshold|
|Standard salary level required for a white collar worker to be treated as exempt||$455 per week ($23,660 a year)||Level equal to 40th percentile of weekly earnings for full-time workers ($970 per week or $50,440 a year for 2016)|
|Total annual compensation required to treat highly compensated employees (HCEs) as exempt||$100,000||Level equal to annualized value of the 90th percentile of weekly earnings of full-time salaried workers ($122,148)|
The proposed salary threshold required for a white collar worker to be treated as exempt represents a significant increase in the current threshold. In addition, the proposed rules provide for annual automatic increases in the threshold levels. The proposed threshold and annual automatic increases in the threshold is of significant concern to many businesses.
In the meantime, a new bill was introduced in the Senate on March 17th that would not allow the DOL to enforce the proposed rules (or final rules if published before the new law is passed) unless the DOL meets certain conditions, including:
- Conducting a full and complete economic analysis with improved economic data on small businesses, nonprofits, and all other employers
- Minimizing the impact on employers before publishing any similar rules
- Providing a rule of construction regarding the salary threshold exemption under the FLSA and for other purposes
The bill, however, does not prevent the DOL from moving forward with final rules, and the process for passing a new law can take time.
Is your business ready for the potential changes? Have you determined the impact of the potential changes on your business? Here are some steps you can take to help determine the impact on your business:
- Compile a report listing all positions and employees paid on a salaried basis below $50,400
- For positions paid less than $50,400, determine if they would be correctly classified as exempt if the salary was increased to meet the threshold requirement
- For positions that pass as exempt if the salary was increased, determine what the cost of increasing the salary to the minimum threshold would be versus making the position nonexempt and eligible for overtime
- Be sure to look at whether you have employees in the same jobs with some paid less than the proposed threshold and some paid more and determine the potential impact
- When modeling the financial impact, factor in automatic increases in minimum salary thresholds (Examples: Determine the cost impact for three year period, determine cost impact for increases required because of compression issues, etc.)
- Based on your financial analysis, develop a strategy for addressing the impact of potential changes
- Based on your strategy, determine if any system and process changes will be required and the timing and resources that will be required to do the work involved
To view the FLSA proposed rules and the new bill introduced in the Senate, see our Resources page. We will also post the DOL final regulations on our Resources page as soon as they are available.