The U.S. Department of Labor (“DOL”) has released a proposed rule that would raise the minimum salary threshold required to qualify for the “white collar” exemptions under the Fair Labor Standards Act (“FLSA”) from the current minimum salary requirement for the executive, administrative, professional and computer employee exemptions of $455 per week ($23,660 per year) to $970 per week ($50,440 per year). This rule would also raise the threshold for exemption as a “highly compensated employee” (“HCE”) from $100,000 to at least $122,148. Both the minimum salary level for exemption and the HCE threshold would increase annually after the new regulations become effective, based on the Consumer Price Index. DOL projects that 4.7 million workers would be affected.
The next step will be publication of the proposed language in the Federal Register. After publication, there is a comment period of 60 days. Following review of the comments, DOL will publish a “final rule” that likely will differ from the proposed rule. The date of issuance will probably be late 2016.
How do these proposed changes impact employers? We suggest:
- Don’t overreact. DOL’s proposed changes will undergo modification during the rulemaking process. Before implementing drastic alterations to existing policies and procedures, wait to see the final rule.
- Begin analyzing positions. While it would be unwise to make many changes before the final rule is announced, that does not mean employers should wait to begin planning. Review those positions in your organization now considered to be exempt but would change under the new rules. How close are the current incumbents in those positions to the new threshold? Do they regularly work more than 40 hours weekly? How difficult would it be to begin tracking time for these incumbents, as you now do for non-exempt employees?
- Develop a plan to communicate with employees. Supporters of the proposed changes predict that it will result in significant wage increases for those affected. That conclusion may be optimistic (or overly pessimistic depending on your perspective). As we saw with the Affordable Care Act, it is too early to predict what impact these changes may have on employees. Employers could reduce hours for certain jobs and hire additional employees to perform the work without incurring overtime. Under that strategy, some employees could face a cut in pay and fall under the 30-hour requirement for health insurance coverage and other benefits. Employers could change an employee’s classification but then lower the employee’s hourly rate so that even with overtime hours, the employee makes essentially the same amount made in salary before the changes. Even a more modest response by employers, such as more closely monitoring hours of work, could have a negative impact on employees. Employees who now enjoy the flexibility of being exempt could face increased scrutiny regarding when they come and go and how many hours they actually work. Before making any changes in response to DOL’s proposed rule, employers should design a comprehensive communication plan.
- Consider Impact in Budgeting Process. It is likely that some change will occur. Employers should assess the potential impact of the required changes in the current budgeting process. This analysis could impact raises, bonuses and hiring decisions.
It is probably too early to modify your practices. Many prior administrators have tried to impact the FLSA and have failed. This effort may fail as well, though some change may be overdue. Keep in mind that any modification made must be applied prospectively so there is no liability based on past practice, as long as you were in compliance with the rules in effect at the time.