By: Chris Mason
Beginning December 1, 2016, the minimum salaries for most exempt jobs will more than double to $47,476 from the existing $23,660 required. On May 18, the U.S. Department of Labor ("DOL") dealt its long-anticipated regulatory amendments for "white collar" overtime exemptions under the Fair Labor Standards Act ("FLSA"), which included increases to the mandatory base salary requirement.
The challenge for employers and employees alike will
be the determination whether certain jobs will continue as exempt positions, or
whether they will be converted to non-exempt positions entitled to overtime pay. Some jobs may end entirely. While other options remain, and a variety of
jobs will remain unaffected, early estimates anticipate that approximately 5
million workers will be directly affected, for good or for bad, by the recent
changes.
The
White Collar Exemptions
Despite common misperception, an employee is not
exempt from overtime pay simply because he or she receives a salary. Employees must meet very specific exemptions
to qualify. Most of those exempt from
overtime pay under the FLSA fall within one of several exemptions referred to
as the “white collar” exemptions. To
qualify for one of these exemptions, an employee must meet the specific job
duty requirements for the professional, administrative, or executive categories
and, in addition, they must be paid a minimum annual salary of $23,660. This minimum annual salary for these
exemptions will bump to $47,476, or $913 per week.
A similar exemption, which also will be affected
by the upcoming changes, applies to highly-compensated employees. The duty responsibilities are relaxed for
highly-compensated employees to qualify for exempt status, so long as their
annual salaries are set no lower than $100,000.
This amount will increase to $134,004 effective December 1.
One of the upcoming additional changes will slightly
improve an employer’s ability to satisfy these minimum pay requirements. Employers may apply non-discretionary bonuses
and incentive pay (such as commissions) towards up to ten percent of the salary
requirement. These additional forms of
compensation were previously inapplicable to the minimum salary
requirement. For highly-compensated
employees, all non-discretionary compensation can be used to satisfy the
$134,004 requirement above a minimum of $47,476 in salary.
The
Continued Payout
The new increases have an even greater impact
than may appear at first blush. For
instance, with the amendments, the DOL has shuffled the deck with a new system
that provides for automatic increases in the base salary requirement every
three years. The increase will be based
on wage data from the bureau of labor statistics, which is expected to warrant
an increase in the minimum salary to over $50,000 by 2020.
Employers evaluating whether to increase the
minimum salaries for exempt employees will likely also evaluate its overall
salary scale. Employees who have
progressed to higher salaries may also expect an increase as their less-senior
cohorts face mandatory increases effective December 1. While this is not mandated by regulation,
employers should be prepared for it.
This, and similar considerations, represents
perhaps the greatest gamble with the new regulatory requirements. The dramatic salary increase may prove too
costly for many currently-exempt positions, which may either be too costly
alone or may not fit in existing salary scales.
Employers will need to evaluate whether to increase salaries, or
transition currently-exempt employees to non-exempt status. Some positions may face consolidation, and
others may be eliminated. For those who
lose their salary status, they may face a change in pay that is tantamount to a
pay rate reduction, and may face stricter scrutiny by their employer when
seeking overtime work.
Splitting
the Odds
Either way, whether employers increase salary for
lower-paid exempt employees or transition them to hourly positions with
overtime entitlement, employers must make changes. If they opt to increase employee salaries to
continue a white-collar exemption, they must ensure that the affected exempt
employees are paid the minimum $47,476 required, unless the employees qualify
for exempt status under a variety of other exemptions. This too should be evaluated. For employers increasing salary, now also is
a good time for them to evaluate exempt employee duties. As previously mentioned, not all salaried
employees are exempt from overtime. They
must meet certain duty requirements to qualify for white collar exemptions. These duty requirements create a significant
challenge for employers on a regular basis, and now is a good time to evaluate
which employees qualify.
Conversely, employees who are transitioned to
hourly positions should be prepared to properly track and account for their
work hours. Many have developed
practices consistent with receiving a salary, and may work flexible
schedules. This may change as employers
impose time clock or time sheet tracking systems on these employees.
Finally, employers should not focus exclusively
on these changes to federal law, as state law may impose stricter
requirements. While an employee may
qualify as exempt under federal requirements, the employee may still be
entitled to overtime pay under applicable state law.
Stepping
Away from the Table
While the changes may seem daunting, all is not
lost. Other exemptions and alternative pay
structures may provide employers and employees with some relief and should be
evaluated. Furthermore, the duty
requirements that were previously in place for the white collar exemptions
remain the same under the new rules, minimizing the disruption. Regardless of their chosen alternative,
employers must plan and prepare for the change, rather than face investigation,
fines, and possible lawsuits for failed or incomplete implementation.
Footer: When the Fair Labor
Standards Act was passed in 1938, the original minimum wage was a mere $.25 per
hour, and overtime only applied after the first 44 hours in a workweek.
No comments:
Post a Comment