Last week a Department of Labor (DOL) official announced that the much-anticipated changes to the overtime pay rules may not be published until late2016. That’s not a typo—she really did say 2016. But the flip side is that the rules will become effective shortly after they are published. So employers would be wise to start mapping out their potential compliance strategy now, rather than waiting until the final regulations actually drop.
As you are probably aware, this past June the DOL issued a proposed regulatory change to the “white collar” exemptions to the minimum wage and overtime requirements of the Fair Labor Standards Act (FLSA). The proposal is to increase the minimum salary that must be paid to employees to be exempt (from the minimum wage and overtime requirements of the FLSA ) for most of the “white collar” exemptions from $23,660 annually ($455 per week) to $50,440 ($970 per week) with annual automatic increases thereafter. This change will apply to all employers with white collar exempt employees, private or public sector, profit or not-for-profit.
Since June 30, the Department has received more than 250,000 public comments, which it is obligated to consider before issuing a final rule. In early November the Solicitor of Labor, Patricia Smith, said the final rule likely will not be published until the fall of 2016 with an effective date as soon as 30-60 days after publication. Most commentators believe that the Department wants the new rule to be effective before the November 2016 general election. In comparison, the last set of FLSA regulatory changes issued by the Department gave employers 120 days in which to review them and make appropriate changes towards compliance. While the final minimum salary amount may be less than the $970 per week proposed, it is inevitable that the current minimum salary will be significantly increased. Once effective, any otherwise exempt executive, administrative or professional employees making less than the new minimum salary will automatically become “non-exempt” and entitled to overtime for hours worked in excess of 40 hours in a workweek. Their employers will also have increased record keeping requirements, including maintaining accurate hours worked records on a daily and weekly basis. If an employee is not paid the minimum salary, it does not matter how important his or her job duties are to the organization, that employee cannot be treated as exempt.
Many organizations with exempt employees who are presently being paid less than the proposed minimum salary are already considering their options, even though it is not clear what the final minimum will be or when it will be effective. Now, it seems relatively certain whatever the new minimum salary amount, employers seeking to maintain current exemptions will have to pay that minimum before the end of 2016 or early in 2017. Employers who decide to wait until the final rule is published will have a very short time in which to make critical business decisions. The time is now to plan and budget for this important change.
Employers with exempt employees at or below the proposed minimum salary level will have to make tough choices: (1) give raises to at least the minimum and annual increases thereafter to keep employees exempt, or (2) reclassify these employees as non-exempt, have them track all working time, and pay the appropriate overtime premium when they work over 40 hours per week. If the latter course of action is chosen, there is also the matter of how to communicate this change to employees in a way to minimize the adverse employee relations that may occur from what many employees may view as a demotion.
Diligent employers should, in consultation with their employment attorney, be analyzing their exempt workforce now to determine those employees who may be affected, decide whether to give raises or re-classify the employees to non-exempt, and how to communicate such changes in a way that will have the least adverse effect on its bottom line and employee morale.