The Fair Labor Standards Act (FLSA) began enforcing overtime regulations in 1938 to protect employees, securing fair pay for fair work.
The minimum salary level threshold for executive, administrative and professional employees (EAP) is currently set at $455 per week, or $23,660 annually, and it’s been nearly 12 years since it was updated. The newly proposed minimum, which is expected to become effective in late 2016, or early 2017, would increase minimums to $970 per week, or $50,440 annually. So, what does this mean?
Under the FLSA, any employee that works more than 40 hours over the course of seven days is entitled to payment of time and a half for those additional hours, as long as they aren’t exempt. The FLSA has three requirements for an employee to be considered exempt for overtime pay: the “salary level test,” “salary basis test” and “duties test.”
The “salary level test” is the focus in this current proposal. Essentially, the FLSA states that any EAP employee, who is paid at least $455 per week, or $23,660 annually, and whose job responsibilities satisfy the “duties test,” may be exempt from overtime pay.
This increase salary threshold, which is being considered by the Department of Labor, would affect at least five million, currently exempt, salaried employees, entitling them to overtime payment if they work more than 40 hours over a seven-day period. A process that can take anywhere from a few months to several years to approve, the 2004 overtime modifications took 13 months to finalize.
It’s likely that employers would offset projected costs by reducing wages, discretionary compensation and hours of full-time employees, rather than increasing salaries, or paying additional overtime without making significant adjustments. How can organizations begin to prepare until sanctioned? Here are two steps to immediately consider focusing on:
Analyzing your current workforce: Identify those employees currently exempt from overtime payment and who will be nonexempt under the proposed salary changes.
Determining potential tools to minimize negative impact: Settle on an approach for managing the wage costs associated with the now nonexempt employees.
The takeaway? Employers should utilize this time to consider the consequences associated with the proposed changes, and potential impacts on their workforce.
Refer to these two articles below for more information and recommendations:
“By failing to prepare, you are preparing to fail.” —Benjamin Franklin