This fall, many employers may find themselves with significantly greater overtime pay obligations than they have ever had before. This is because, if new rules proposed by the Department of Labor go into effect as expected, the minimum salary levels for certain classifications of non-exempt employees under the Fair Labor Standards Act will dramatically increase.
Under the proposed regulations, the standard salary threshold for the administrative, professional, and executive exemptions from overtime requirements will more than double – from $455 a week to about $970 a week (or from $23,600 per year to $50,440 per year). The increase is intended to set the salary level at the 40th percentile for full-time salaried workers. The Department of Labor has estimated that more than 5 million additional workers will become eligible for overtime pay as a result of the change.
The exemption for “highly compensated employees” is also getting a significant update. The minimum annual salary for that exemption is currently $100,000, but under the proposed rule it will be $122,148. This increase will align the salary threshold with the 90th percentile of weekly pay for full-time salaried employees.
Further, in order to keep salary thresholds up to date, the proposed rule provides for automatic increases that will allow the thresholds to keep pace with inflation going forward. This will reduce the likelihood that such sudden, major increases will be necessary in the future.
So what does all this mean for your company? From a practical standpoint, employers should begin preparing to comply with the new regulations now. The final rules are expected to be released this summer and to become effective sometime in September, so time is of the essence.
Assess their employees’ eligibility for exemptions based on their salaries as well as the other applicable exemption criteria;
Employees whose status will change under the new regulations should be notified in a timely manner; and
Managers should review company overtime policies with these employees.
Alternatively, employers may wish to raise the salaries of some employees to the minimum exemption level if the financial impact of employees’ becoming non-exempt would be greater than the impact of a raise.
Employers should not only consider the potential impact of the new rules on the company’s bottom line but on employee morale as well. Companies should be sensitive to how employees may interpret their change of status. While a manager may assume that sudden eligibility for overtime pay will be received by employees as good news, some employees may actually view this status change as akin to a demotion. Workers who have always been exempt from overtime pay may have enjoyed a certain measure of freedom and discretion in connection with that status—their start times, leaving times, and lunch breaks may not have been closely monitored by management as long as they were getting their work done. The time-tracking requirements that will accompany their new non-exempt status may introduce a level of “micromanagement” to their working lives to which they are not accustomed, making them feel that they are no longer being treated as the professionals they see themselves as. Employers would be wise to anticipate this type of reaction and take steps to ensure that these employees know that their stature within the organization has not changed, and that they remain as valued and respected as ever.
While reactions to these changes may vary, one thing is certain: implementing the new rules will cause some headaches for employers. The best remedy is preparation – and early preparation at that. For guidance in tackling these changes, employers can reach out to Portnoy, Messinger & Pearl & Associates, Inc.. Let our 52 years of experience assist you in navigating this sensitive situation. Contact us at 800-921-2195 or 516-921-3400. You can also visit our website http://www.pmphr.com/ or e-mail us at info@pmpHR.com.
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