The U.S. Department of Labor’s Notice of Proposed Rulemaking (NPRM) calls for a dramatic increase to the salary threshold for the FLSA’s “white collar” exemptions. Currently, employees whose duties fall under the executive, administrative, or professional exemption are exempt from overtime pay if they are paid on a salary basis of at least $23,660 per year. Under the NPRM, that salary threshold will more than double to approximately $50,400 per year. The annual compensation threshold for the “highly compensated” exemption will go from $100,000 to approximately $122,148. These increases are just the beginning: the NPRM includes a provision to automatically increase the threshold amounts further each year.
Although the NPRM is only a proposal for now, we anticipate that the final rule will be substantially similar and will be issued within the next few months, to go into effect sometime in the third quarter of 2016.
Almost all businesses will be impacted by these changes. To prepare, you should:
• Audit your current FLSA classifications now. Review each position that you treat as exempt to confirm that it is properly classified. Do the position’s duties conform to one of the FLSA’s exemptions? Is the person paid on a salary basis? Does the annual salary meet the current threshold ($23,600), and will it meet the new threshold (approximately $50,600)?
• Decide what to do with any employees who are currently exempt but whose salary is less than $50,400. If they are close to the new threshold, it may be easiest to give them a raise to meet it. Otherwise, you will need to convert them to non-exempt, meaning that you must track all hours worked and pay overtime. This may affect your bonus structure, because bonuses for non-exempt employees impact their overtime pay. To keep your increased overtime costs down, you may need to hire additional staff.
• Review your policies to ensure that they address the timekeeping requirements for nonexempt staff and their supervisors, and that they provide a means for all employees to report inaccuracies in their paychecks.
• Train all of your non-exempt staff and their supervisors on timekeeping to ensure that all compensable time is captured, including time spent out of the office answering work-related emails and calls. This is especially important for those converted to non-exempt under the new FLSA changes, because neither they nor their supervisors are used to tracking time.
Finally, do not underestimate the significance of these changes or the complexity of the FLSA analysis. You should consult an attorney in assessing whether your positions are properly classified as exempt or non-exempt. Although the FLSA has been around for almost 80 years, it is enjoying a resurgence of interest from plaintiffs’ firms, for whom employers’ mistakes are easy—and lucrative—targets, easily exploited by class action lawsuits.