Last summer, employers learned of the Department of Labor (DOL) proposal to change provisions of the Fair Labor Standards Act (FLSA) to extend overtime protections to nearly 5 million white collar workers in the U.S.
Ever since then, businesses have been bracing for the final regulations to be announced. That could happen as early as May.
Under the FLSA, employees generally must be paid overtime if they work over 40 hours in a workweek. The DOL can create and update regulations which clarify certain provisions of the FLSA, including which employees qualify for certain exemptions from overtime pay and other rules. The most well-known of these are the professional, executive, and administrative, or “white-collar” exemptions. Less well-known is the computer professional exemption, but, it too will be affected by the DOL’s current proposal. In order to fall under one of these exemptions, an employee must perform duties consistent with a particular exemption and make a certain weekly salary. Since 2004, the required salary for an “exempt” employee has stood at $455 per workweek, or just under $24,000 a year. It’s this “salary basis test” that has drawn most of the DOL’s attention.
The proposal more than doubles the minimum salary from $455 to $970 per week. The impact to businesses would be widespread, as the new rules would mean that virtually all workers earning a yearly salary of $50,440 or less automatically would be entitled to overtime pay.
So how much time do employers have left to prepare?
The DOL has not provided a date certain for issuing its final rule, but it likely will be sometime this year. And if the final rule is challenged in court, then all bets are off. While a legal challenge is all but certain, adjustments to the exemptions or even the salary basis test are not unprecedented, so any attempt to block the rule change is likely to prove unsuccessful in the end. Employers should not be tempted to place too much reliance on judicial intervention. Change is coming.
Monitor closely. Have a game plan.
Until a final rule is actually issued, employers should hold off on making any significant changes to their workforce. Though once the proposal becomes law, employers will be forced to re-think their workforce planning strategies. Some companies will simply have to pay overtime to more employees, others may need to hire more workers to avoid paying overtime, while some may elect to scale down their operations so that current employees do not work over 40 hours per workweek. Each scenario comes with its own set of costs and consequences.
The best advice for companies is to formulate a game plan. Employers can begin by collecting exemption status and salary data so they can identify who will be affected and measure the potential impact to their financials and budgets. Experts like the HR managers at Engage PEO (all employment attorneys) can help businesses build a long-term workforce strategy.