The Department of Labor (DOL) issued proposed changes to the Fair Labor Standards Act (FLSA) on June 30, 2015, that could potentially impact every employer in the United States. The FLSA determines who is eligible for overtime pay. Employers are required to pay overtime when employees not exempt from the FLSA work more than 40 hours in a workweek. Overtime must be at a rate not less than one and one-half times the worker’s regular rate of pay.
The proposed changes include the following:
1) Raising the salary basis test for an employee to be exempt from the FLSA from $455 per week or $23,660 annually to $970 per week or $50,440 annually. This represents the 40th percentile of weekly earnings for full-time salaried workers in the United States.
2) Currently, highly compensated employees who earn $100,000 per year or more and who customarily and regularly perform any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee, as defined under the FLSA, are exempt from the overtime requirements without satisfying the full duties test. These employees must also receive at least $455 per week on a salary basis to qualify under this exemption. The proposed change is to raise the highly compensated from $100,000 annually to $122,148 annually. This represents the 90th percentile of weekly earning for full-time salaried workers in the United States.
3) Having an updating or salary indexing feature that as rates of pay increase across the United States the FLSA salary basis test will increase. This represents the 40th percentile where workers are being paid on an ongoing basis.
While these are proposed changes we are currently in a comment period. Companies and organizations across the United States will be allowed to voice their concerns over the proposed changes. Final regulations will be released later in 2015, with implementation planned for 2016.
So, what should employers be doing now to get ready for the changes? Employers should start planning for significant increases in the number of employees who will be entitled to overtime compensation. They should be reviewing the job duties and salary levels of employees currently classified as exempt and determine which employees will likely be deemed nonexempt under the new regulations. Employers will continue to be able to limit the amount of overtime compensation due such employees as long as they limit the number of overtime hours the employees work. For those employees who are reclassified, employers need to make sure that they are including the extra dollars in their 2016 budgets to cover the overtime, as appropriate.
For additional information on the proposed changes to the FLSA, please contact us at www.newfocushr.com.
Written by: Kristen Deutsch, M.B.A., CCP