Changes to overtime regulations coming soon
Posted On: 4-1-2016 | Posted By: Beth Fitzgerald, Human Resources Generalist
As we shared with you last year, the Department of Labor proposed new rules in July 2015 that would raise the minimum salary level for exempt employees. The proposal was subject to a public comment period and is now undergoing a final review. While we do not know the content of the final rules, we do expect them to be published by July 2016. Employers should be prepared, as they will likely have a 60-day window to implement the new wage rules.
The Department proposed, among other things, to increase the minimum salary level at which an employee may be classified as exempt (salaried) to an estimated $970 per week, or $50,440 annually. The current salary minimum is $455 per week, which is equivalent to $23,600 per year.
The proposed rules also suggest adopting a mechanism to automatically update annual minimum salary levels without need for further rulemaking, which is to be based on either percentile or inflation. The proposal set the minimum salary level at the 40th percentile of salaries, and the 90th percentile for highly compensated employees.
A comment period was made available after the rules were proposed, during which time nearly 300,000 comments were submitted. The comments were reviewed over several months, and the DOL submitted the final rule to the Office of Management and Budget for review on March 14, 2016. It is expected that the final rules will be published by July 2016.
Employers will likely have a 60-day window to implement the wage rules after they are published, and we recommend you start preparing now. What steps should you take?
- Review employee classifications. Do you have any employees classified as exempt who do not meet the DOL duties tests? Failing to correctly classify employees puts you at risk no matter what the final overtime rules are. Reclassify exempt employees as non-exempt if they do not meet the duties tests. And, be aware that you’ll need to pay the newly non-exempt employee time-and-one-half for any overtime hours. The Department did not propose changes to the duties tests last year, but it did specifically solicit suggestions and comments related to the tests. Any potential changes to the duties tests will be published with the final rules.
- Decide whether you’ll raise exempt employee salaries to the minimum or reclassify them as non-exempt. If an exempt employee’s current salary is relatively close to the proposed minimum, raising their salary might not have much impact to your bottom line. If the difference is too great, you can reclassify the employee as non-exempt and continue paying them at a similar rate. Again, remember that non-exempt employees are subject to DOL overtime rules.
- Consider how the new minimum salary threshold could affect employees who are already paid more than the proposed minimum. The DOL proposal could result in a bump in pay for some employees, but it is wise to think about how employees who are already paid more than the minimum will view this change. For example, if Frank makes $52,000 per year and has been employed for nine years, will he feel slighted when the DOL rules are implemented and second-year employee Josh sees his pay increase from $46,500 to $50,440? Josh has seven fewer years of experience, but suddenly the difference in pay is negligible. Think ahead about how you will handle this – does Frank also need a small raise, or will you hold the line? (And don’t think your employees don’t have a good idea how much others are paid – employees talk, and online tools like Glassdoor make salary information more readily available.)
Your human resources department or employment attorney should be consulted if employees are to be reclassified, as misclassification could result in fines. Communication with affected employees will also be important, to ensure they understand the changes and the reasons for them.
Even after the rules become final and you’ve made the necessary changes, your work might not be complete. If the automatic annual update portion of the proposal becomes final, employers will have to review salaries annually to ensure they meet the required minimum.
We will update our website when the final rules are published. In the meantime, feel free to contact your WK advisor at (573) 442-6171 or (573) 635-6196 if you have any questions.