Spring of 2016 is upon us. That brings with it warmer weather, chirping birds and, according to the Secretary of Labor Thomas Perez, implementation of the Department of Labor’s (DOL) proposed regulatory changes for determining whether certain employees qualify as exempt from overtime under the so-called “white collar” exemptions. Generally, the Fair Labor Standards Act’s (FLSA) “white collar” exemptions permit employers to avoid paying overtime to an employee so long as the employee performs specific job duties and is guaranteed a specific salary (referred to respectively as the duties requirement and the salary basis requirement).
The DOL’s proposed regulatory changes raise significant concerns for employers. While there were no proposed changes to the job duties requirement, the DOL more than doubled the salary basis requirement, raising it from its current $455.00 per week ($23,660.00 annually) to a startling $970.00 per week ($50,440.00 annually). Estimates indicate this has the potential of reclassifying between five (5) and six (6) million currently exempt employees as non-exempt, making them eligible for overtime pay. This has enormous implications because the vast majority of employers not only enlist these exemptions, they intricately intertwine them into business operations. As a result, employers will face challenges in meeting production standards, containing overhead and managing profit margins.
Meeting these challenges requires that employers initially identify all employees currently exempt under the “white collar” exemptions who also earn less than $970.00 per week. Once identified, the employer must utilize a combination of employee relation strategies aimed at minimizing the effect on business operations. Such strategies may include analyzing the affected employees with the following questions in mind:
- Is the employee’s salary close enough that it can simply be increased to match the new threshold without a significant impact on business operations?
- What impact would it have on business operations given the employee’s role in the company to reclassify him or her as non-exempt, reduce his or her salary to an hourly wage and pay all appropriate over time?
- Are there scheduling changes that can be made using a combination of part-time and full-time employees that would have a positive impact on business operations in light of the number of affected employees?
- How should the business address the inevitable concern that some employees will incorrectly perceive a change from exempt status to non-exempt status as a demotion?
In addition to the foregoing, it is paramount that the employer revisit policies and practices to accurately track hours worked for all employees, regardless of employment classification. Failing to do so can leave employers unprepared and expose them to liability under what is sure to be a plethora of new wage and hour lawsuits as the proposed regulations come into play.
For assistance with preparing for the new DOL regulations and to evaluate a strategy to address problematic exempt employee classifications, contact Rinke Noonan attorney Chad Staul at (320) 251-6700 or email him at firstname.lastname@example.org.
© 2016 Rinke Noonan