In early 2015, the US Department of Labor proposed an increase to the minimum salary required to classify an employee as exempt from the Fair Labor Standards Act (FLSA) overtime requirements. Released May 18, 2016, this act increased the current annual salary threshold from $23,660 to $47,476, impacting approximately 15 million US employees. The new rule is intended to help grow the middle class, promote higher take home pay and allow workers to better balance their work and family obligations. The new rule must be implemented no later than December 1, 2016.
- Created in 1938, the FLSA mandates minimum wages and which employees are eligible to receive overtime as well as creating the Duties Tests to determine which employees are exempt or non-exempt.
- The current annual salary threshold ($23,660) for determining automatic overtime eligibility is below the poverty level for a family of four.
- The weekly salary threshold is increasing from $455 to $913 ($47,476 annually). These amounts represent the 40th percentile of US average wages and will be adjusted every three years to maintain the 40th percentile. This will require employers to monitor salary levels periodically as employees not currently impacted may fall below the mandatory threshold in the future.
Anticipated Unintended Consequences:
- Changes to the Duties Test (i.e. Professional Exemption) for determining overtime exemption are highly probable, possibly reducing the number of “exempt” workers, thus making them eligible for overtime. DOL exemption information: https://www.dol.gov/whd/overtime/fs17a_overview.htm
- Consumer prices will likely increase as employers and manufacturers pass on the additional labor costs.
- Profit margin for Seattle businesses will be impacted twice – once with the increased minimum wage effective in 2017 (for employers with 500+ employees; by 2019 for smaller employers) as well as the new overtime threshold.
- It is anticipated that 85% of not-for-profit jobs will not meet the new salary thresholds, requiring salary increases or overtime pay. Not-for-profits may need to increase fund raising activities to meet the increased salary expenses.
Steps Employers Should Consider Taking NOW:
- Review all current exempt positions to determine which positions will be impacted by the new salary threshold.
- Review all job descriptions; have duties remained the same, or does the job description need to be updated? Do you need to reclassify any employees? Legal review of reclassifications may be necessary to ensure changes meet the appropriate Duties Test.
- Determine how many hours an employee worked over the standard 2,080 FTE hours to determine any possible overtime expenses for those currently exempt positions that will be impacted by the new overtime salary threshold ($47,476 for 2016).
- Review your future labor budget: who will work overtime hours if your current employees don’t? Is it more cost effective to hire additional staff with benefits than pay overtime to current staff?
- To determine if it is more cost effective to increase an employee’s current salary to meet the new overtime threshold or pay the employee overtime, a convenient overtime exemption cost estimator has been developed and may be found at: https://architectsapps.compliancehr.com/a/overtimeexemptionestimator
- Do any of your policies regarding overtime need to be revised?
- Develop a communication plan to announce all changes to employees.
- Ensure executive buy-in to the plan.
- Meet with managers of impacted employees to answer their questions and ensure their understanding of any changes to pay and policies so that they are able to answer their employee’s questions.
- Listen to the manager’s feedback and revise your communications plan accordingly.
- Meet with employees about the changes and answer their questions.
- Implement any changes by December 1, 2016.