Recently, President Obama announced changes to the Fair Labor Standards Act (FLSA) that would make nearly 5 million more Americans eligible to receive time-and-a-half overtime wages.
The law currently exempts workers from overtime pay if they receive a minimum fixed salary of $455 per week or more than $23,660 per year, and the employee holds a position with duties designated by the U.S. Labor Department as appropriate for exempt status. This means that the employee is paid that set salary for each pay period regardless of the number of hours worked. The law further stipulates that employees may be exempt from overtime pay if they meet certain duties tests. The five exemption categories include “executive, administrative, professional (subdivided into learned professional and creative professional), and certain computer and outside sales” duties.
The proposed change would raise the salary threshold for overtime pay to $50,440. This means that workers who earn as much as $970 a week — $50,440 a year – would have to be paid overtime even if they meet the job duties exemption.
This will dramatically impact the lives of workers, as well as hundreds of thousands of organizations and employers. To know how the change will impact you, it is essential to determine whether you currently have accurately classified your employees as exempt and non-exempt. Then determine the number of exempt employees who are currently earning less than the proposed threshold of $50,440.
If you have classified employees as exempt and who currently make less than $50,440 a year, it would be wise to prepare for rising costs that will likely arrive with this change. Compensation budgets could take a hit from increased overtime pay or from increasing salaries so that employees can keep their exempt status. Many employers have started to reconsider hours, compensation and benefit packages. Some employers have announced plans, if the change goes into effect, to move salaried workers into the hourly pay category, pay salaried workers more, or pass the increased costs on to customers.
The Society for Human Resource Management (SHRM) argued that the change will “affect nearly every employer in every industry and sector,” but also “disproportionately affect the nonprofit and service sector industries, as well as certain geographic areas of the country.” SHRM also warned that many in this sector may not yet be aware of these impending changes.
Fortunately, there is still some time left to prepare. Administration officials have estimated the rule will be finalized by January 1, 2016, while some SHRM experts estimate that employers will have up to a year to comply. This is the perfect time to ensure that all employees are properly classified. It is also important to be transparent about any potential changes. For example, if team members are moved from salaried to hourly positions, sufficient warning and explanation will be essential to maintaining high morale.