The U.S. Department of Labor (DOL) recently announced a significant proposed change to the wage and hour rules under the Fair Labor Standards Act.
Background
The current rules generally require employers to pay an employee one and one-half times an employee’s regular pay rate for hours worked over 40 in a work week. However, the rules exempt certain “white collar” employees from the overtime pay requirement.
To fit within this exemption, each of these tests must be met:
- “Salary basis test” – The employee must be paid a fixed salary that is not subject to reduction due to variations in the quality or quantity of work performed.
- “Salary level test” – The employee’s salary must exceed $455 per week ($23,660 annually).
- “Duties test” – The employee’s primary job duties must involve executive, administrative, or professional duties.
Proposed Change
The DOL proposes changing the “salary level test,” increasing the threshold from $23,660 to $50,440 (with a provision for future annual adjustments). The DOL has characterized the salary level test as being the “best single test” of exempt status. Information from the Department of Labor can be found at http://www.dol.gov/whd/overtime/NPRM2015/.
Impact
Based on 2013 data, the DOL estimates that this change may impact over 20 million workers, about 15% of all U.S. workers. As we understand, no effective date has been established for finalizing the proposed rule changes. A short period for submitting comments from interested parties on the proposed changes closes on September 4, 2015. Many businesses, industry associations, and other organizations have identified major impacts from the proposed rules, if finalized. Here are just a few such impacts:
- Employers will be required to reassess exempt status for employees in salaried positions earning less than $50,440 and to strategize about how to address these employees’ situations.
- Employers may need to revise labor cost budgets and the pricing of their products and services to find the dollars needed for additional overtime pay or adjustments in annual salaried compensation.
- Employers will need to consider all staffing options to determine the most cost effective manner in which to operate and alleviate the added overtime pay burden.
- This may include a staffing model favoring more part-time staff.
- Employers may explore ways to reduce headcount.
- Employers will need to assess pay practices for seasonal workers and flex-time working arrangements.
- Employers may need to create new systems and policies to govern the approval and control of overtime work.
- Employers may need to upgrade or implement technology (software and hardware) to manage the entirety of the payroll process.
For further information, questions, or guidance, please contact Jim Green, Director of Accounting & Financial Outsourcing, at jgreen@deandorton.com or (859) 425-7615.