As we have previously reported, the final FLSA overtime rule is set to go into effect on December 1, 2016—now just days away. The new rule raises the salary threshold for workers to qualify as exempt from overtime pay requirements from $455 to $913 per week (or from $23,660 to $47,476 per year), and increases the current minimum salary requirements for employees exempt from overtime pay under the “highly-compensated” exemption from $100,000 to $134,004 per year. As the current rule stands, there will also be automatic increases to these thresholds every three years, beginning in 2020. These changes are likely to have significant impact on many employers.
Although the new rule is currently moving forward as slated, there has been much discussion about how the recent election and pending legal challenges will affect implementation the rule. This is presently unclear, but worth monitoring.
First, in September of this year, 21 states brought an action against the U.S. Department of Labor challenging the new overtime rule, which was later consolidated with a similar case brought by multiple trade associations and business groups. Most pressingly, the case includes two outstanding requests for injunction to pause implementation of the new rule. The federal court judge overseeing the case in the Eastern District of Texas recently stated that he intended to offer a ruling as early as November 22, 2016. However, it is obviously unknown how the judge will rule or what affect that ruling will have at this time. Therefore, employers must still prepare as if things will move forward as planned.
Second, the recent presidential election has prompted more questions about potential executive actions than any other election in modern history. Given President-elect Trump’s declarations regarding limiting federal oversight and drastically overhauling current federal government programs and regulations, there has been varied speculation regarding the overall impact on the Department of Labor. Indeed, it is very possible that regulations similar to the FLSA changes scheduled to go into effect next week could be modified drastically or removed altogether. Once again, however, we will not know what changes employers will face until the policies are defined and begin to be implemented. And regardless of the impending changes, they will take time and will not immediately have an impact on the impending deadline.
Therefore, for now, employers must continue to prepare to follow the new rule as written. If you have not already taken steps to comply with this new rule, there is no longer any time to procrastinate.
The most basic option to ensure compliance with the rule is to raise salaries under the threshold to ensure all exempt employees meet the minimum salary of $913 per week. As long as the employees continue to meet the substantive job requirements for exempt status, which have not changed under the new rule, this is perhaps the easiest way to ensure employees are earning the wages to which they will now be entitled under the new rule. For employees whose salary is currently $42,728.40 or more, another possibility is to keep the salary as is and add a quarterly non-discretionary bonus (if 10% or less of the threshold) in order to make total payments equal the minimum amount.
Another straightforward option is to reclassify employees as non-exempt and pay overtime for any hours over 40 per week (or as otherwise required under state law). This option is workable for most employers, but will require more oversight and consideration of numerous factors, including the need to closely track and record hours works, the potential for decreased flexibility for reclassified workers, the potential for required meal and rest breaks (depending on state law), and a need for more robust bookkeeping, among other considerations.
Whichever path you choose, we recommend conducting an internal audit immediately (if you have not already done so) to determine which, if any, employees will need to be reclassified and what company policies will need to be updated. All possible options should then be discussed with legal counsel or other employment professionals familiar with the FLSA regulations. Then, prepare to implement the necessary changes as soon as possible. If the deadline is somehow changed, you can then respond accordingly. But you do not want to be caught unprepared if things proceed as planned.