President Obama announced this week a proposed rule change to the Fair Labor Standards Act (“FLSA”) that will affect every business. The proposed rule change will increase the minimum required salary for employees to qualify as exempt under the FLSA from $455 a week to $970 a week. Accordingly, this rule will require employers to pay overtime to those employees earning $50,440 a year ($970 a week) or less. It will expand the number of people eligible for overtime from approximately 8 percent of the salaried workforce to about 40 percent according to the fact sheet provided by the Department of Labor. Under this rule, 5 million more Americas will be entitled to overtime pay.
The new regulation is the most sweeping policy undertaken by the President to assist the middle class, and the most ambitious intervention in the wage economy in at least a decade. Administration aides have warned the new regulation will not always lead to wage increase because in many instances employers might cut back employee hours worked rather than pay the required time-and-a-half. Conservatives and business groups are fiercely opposed to the new policy, which means this executive order, like all executive policies, will be challenged in court and most likely in Congress.
Wage and hour laws are also under reform in Louisville, Kentucky. This week, a new minimum wage ordinance took place raising wages from $7.25 an hour to $7.75 an hour. On June 29, 2015, a circuit court judge upheld ruled the City’s minimum wage ordinance, but that decision is likely to be appealed. The law will gradually increase the city’s minimum wage to $9 an hour by July 1, 2017.
In light of these new and proposed regulations, employers will have many considerations. In Louisville, the main consideration is budgetary. However, when the FLSA is amended, employers will have to review all current exempt positions and determine if under the new minimum salary requirements those employees will remain exempt. This, too, has obvious budgetary implications, but it will also impact the overall management and operations of the business. Employers will be faced with determining whether to provide a salary increase to those employees making less than $970 a week to be within the minimum weekly salary or change their classification to non-exempt allowing for overtime compensation. This may also require a review of a company’s employee policy manual with regard to when overtime will be approved.