The U. S. Department of Labor (DOL) proposed a new ruling last month that affects whether employees are deemed eligible for overtime or not. The DOL has estimated the change will make more than 1 million employees eligible for overtime that are currently defined as exempt.
If the ruling passes, some of the more important changes are as follows:
- Increases the minimum salary required for an employee to be exempt for overtime pay from the current $455 per week to $679 per week (or $35,308 annually)
- Increases the annual compensation requirement for “highly compensated employees” from $100,000 to $147,414
- Allows employers to use non-discretionary bonuses and incentives payments to satisfy up to 10% of the standard salary level
The proposed rule is currently in a comment period through May 21, 2019. If you wish to comment on the proposed ruling, you can do so at http://www.regulations.gov. Should a final ruling be issued, it is anticipated it would be in the latter half of 2019. This could change depending on any continuing litigation.
So, What Should I Do?
While this ruling is currently in the proposal stage, it is important to begin determining how to address the changes should it become a final ruling. Below are three suggestions on how to prepare for the potential change:
Make Sure Your Current Employees are Properly Classed
Oftentimes employers struggle with properly classifying employees as exempt/nonexempt. This struggle is typically due to not fully understanding the exemption requirements under the Fair Labor Standards Act (FLSA). For example, we often see employers making employees exempt based upon their job title or the fact they are paid a set amount each pay period. In reality, the designation must be made based on their duties and not their title or how they are paid.
We recommend reviewing the duties of each employee that is currently treated as exempt to ensure they meet the exemption requirements under the FLSA. Then make adjustments for any employees that are improperly designated as exempt.
Determine Which Employees Would Be Affected
It is also important to determine which employees would be affected by the ruling so you can determine the potential financial impact on your business. Specifically these employees would be those that meet the Exemptions for Executive, Administrative, Professional, Computer & Outside Sales Employees under the Fair Labor Standards Act and make between $455 and $679 per week.
For employees between this pay range, employers will have to make a decision on how to address these employees. Should they stay at the same rate of pay and begin receiving overtime, or receive a pay raise to the $679 per week? This is a calculation that each employer should undertake to see how it will affect their business.
We recommend the calculation be performed for each of the currently exempt employees that have salaries within the $455 and $679 range. Informed decisions should then be made as to whether an exempt employee should receive a raise or begin to get overtime. These decisions should also incorporate any non-discretionary bonuses the employee is eligible since these can satisfy up to 10% of the standard salary level.
Formulate a Plan
It is important for employers to develop a plan on how they will address any changes if the proposed ruling becomes final. The biggest component of the plan should include how to communication any changes in status or compensation to affected employees. This is an area we often see neglected.
We recommend employers go through a very thoughtful process to develop the best way to notify affected employees and ensure they understand how their status/compensation will change and when the change will go into effect.
When Do I Make Any Pay Rate Changes?
It is important to remember that the ruling is a proposal and not final. Therefore, there could be changes or the ruling may not go into effect. As mentioned above, it is unlikely the proposed ruling would go into effect prior to late 2019. As we saw in 2016 when the last proposed overtime ruling was to become effective, circumstances can change. In that instance, the ruling was struck down at the 12th hour by the U.S. District Court for the Eastern District of Texas. Therefore, we suggest that you wait to make any changes until the effective date of the proposed rule.