Back in May of 2016, the Department of Labor (DOL) issued a significant change to the Fair Labor Standards Act (FLSA), with the changes to have been effective December 1, 2016. The FLSA law establishes the right to a minimum wage and governs overtime pay. At the last minute, at the end of November 2016, the proposed change to the FLSA was blocked by a federal judge, and everything came to a screeching halt.
Now, over two years later, the Department of Labor (DOL) has proposed a new version of the same rule. This time around, on March 7, 2019, the DOL’s change would make 1 million employees eligible for overtime and impact companies across the country, particularly small businesses and non-profits.
Here are a few of the key points that are included in the proposed new rules:
- The proposed weekly salary threshold for white collar employees would increase to $679 per week, up from the current $455 per week.
- The proposed annual compensation threshold for highly compensated employees would increase to $147,414, up from $100,000 annually.
Although it is not a final ruling yet, and it is a long process to change the FLSA, it’s important for companies to be aware of the proposed changes and plan for the potential impact they will have on their business and employees.
The compensation threshold described above is the first requirement to determine the proper classification of employees. Employees classified as “nonexempt” must be eligible for overtime pay. If an employee is “exempt,” they do not have to be eligible for overtime.
The duties test, which assesses job responsibilities, is the second requirement to determine whether someone qualifies as exempt. However, no updates are proposed to the duties test at this point.
With these proposed changes, there is the potential for a significant financial impact on your business; it will also change how you classify and, therefore, manage your employees. There are a variety of things to consider when reclassifying someone from Exempt to Non-Exempt:
- Tracking hours and budgeting for overtime pay
- Reviewing your compensation plan and policies related to tracking time and telecommuting as an option for employees
- The issue of morale for workers being re-classified from Exempt to Non-Exempt
- The impact it has (if any) on available employee benefits
- Training for managers on making the change from managing exempt employees to non-exempt employees
- Redistribution of job duties based on the classification change from exempt to non-exempt. It is important to ensure that the job descriptions are updated to accurately reflect the role.
- Managing the communication to employees about the change and what it means for their job
Ultimately, this proposed change means that if you have an employee that is being paid less than $35,308 a year ($679 per week), regardless of the responsibilities of their role, that employee is automatically non-exempt eligible for overtime and not eligible for an exempt classification. This means that they must be eligible for overtime pay.
To prepare for this potential rule, companies should assess if someone is close to the threshold amount, and if the role the employee is in meets all the other exemption requirements, it might be better to increase the salary for the role instead of paying overtime. There are a variety of factors that play into what companies should do in this situation, and misclassification of employees is a significant liability for companies. Because of that, we strongly encourage small business owners to reach out for assistance in this matter.
If you have any questions about overtime or the Fair Labor Standards Act (FLSA), please feel free to reach out to us!
Source 1: United States Department of Labor