Could an Increase in Your Company's Payroll Expenses Be On the Horizon?

Last summer, the U.S. Department of Labor (DOL) proposed significant regulatory changes to the methodology and minimum salary threshold of certain overtime exemptions under the Fair Labor Standards Act (FLSA).  In March 2016, the DOL sent a final version of the proposed regulation to the White House Office of Management and Budget.  This means that the changes, if approved (which is likely), could be in place as soon as this summer. 

Why Should Personnel Management Be Concerned?  

Among the proposed changes, the most significant is the proposal to increase the minimum annual salary level required for the FLSA “white collar” exemptions from $23,660 to $50,440.  

Currently, salaried employees earning at least $23,660 that also pass the FLSA “Duties” test can be considered exempt from overtime pay.  Under the new proposed regulation, salaried employees still have to pass the “Duties” test but not until their salary reaches $50,440.  For example, an employee that previously operates in a managerial capacity that passes the “Duties” test and makes $38,000 is exempt from earning overtime.  That same employee may soon be eligible for overtime if they work more than 40 hours in a week.  

What This Means for Currently Exempt Employees

One of three things will have to be done at almost every company with currently “exempt” employees that work more than 40 hours a week:

 

  1. Affected employee salaries will have to be increased above the new threshold (currently proposed at $50,440) ; or
  2. Affected employees whose salaries remain below the threshold, will have to be paid overtime ; or
  3. Affected employees will need their hours worked capped at 40 hours a week to avoid overtime.

This translates into an increase in the budget for salary in 2016 and beyond to account for overtime pay and wage increases, or it will require the tracking and managing of the hours of all newly classified non-exempt employees.  

Moreover, the salary threshold will be indexed to Consumer Price Index, and is therefore expected to rise annually.  These changes are expected to have significant impact on the restaurant, hospitality, retail, construction and higher education industries but all employers will have to find payroll solutions to ensure compliance.   

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