The new Department of Labor (DOL) Fair Labor Standards Act (FLSA) rule takes effect in less than a month—on December 1, 2016. Review our prior alert with a summary of the final rule. The most significant change is that in order to meet the salary basis test for the white-collar exemptions (executive, administrative and professional), employees must be paid a minimum of $47,476 per year, or $913 per week, on a salary basis.
Many employers have completed audits and implemented changes; some have completed an audit but are hesitant in what course of action to take; some are hoping that the courts or Congress will change or stop implementation of the law in the final weeks; and some are realizing (perhaps as they read this alert) that the end of the year came rapidly and FLSA audit crunch time has arrived.
Regardless of where your readiness stands, it is important to have a plan for these last few weeks. That plan may simply be to stay in touch with employees with whom changes have already been implemented to monitor and proactively address morale issues. Or, the plan may be to start at step one and begin auditing affected positions.
Now is the best time to make changes, not only for strict compliance with the new salary thresholds, but to all of your organization's exemption classifications. Why? Because the communication to employees is often the hardest part, and having the DOL's final rule to fall back on as the reason for the change is an opportunity that should not be missed.
First, employers should look at current exempt employees that will no longer meet the salary test (anyone not making $47,476 per year). Keep in mind, though, that to be exempt, employees must also meet the duties test (for the white-collar or other exemptions). Bumping up the salary of an employee who is improperly classified as exempt based on his or her actual job duties exposes employers to increased overtime risk down the road. Employers often worry about morale (and risk of claims for past overtime) if a position is reclassified from exempt to non-exempt. The current rule change offers a useful message to blunt these concerns. Additionally, there are non-exempt compensation structures that can help ease that transition (e.g., salaried non-exempt). There may also be industry/position-specific exemptions that apply to your business that you have not considered yet.
Second, employers should review remaining exemption classifications, even those that are already above the new salary threshold. Again, now is a great time to make corrections to enhance your company's general compliance under the umbrella of the new December rule.
Finally, think about timing: December 1 falls on a Thursday, so employers should consider making changes beginning the week of November 27, 2016, so that wages and overtime calculations are not complicated by a mid-week starting point.