By Kevin M. Goldberg
It’s official! (or at least very, very close): The Department of Labor has announced that new rules affecting eligibility to be paid the federally mandated minimum wage and for overtime pay for work in excess of 40 hours per week take effect on Dec. 1, 2016.
Though the changes were originally proposed in July 2015, I summarized the proposed rules on the NPF website in April 2016 (which, in turn, relied heavily on a post I had just written for my law firm’s Commlawblog).
There is a (very small) chance that the rules could be blocked by Congress. Legislation known as the “Protecting Workplace Advancement and Opportunity Act” has been introduced in both the House (as HR 4773) and the Senate (as S 2707). It actually has pretty strong support in each chamber, with 163 co-sponsors in the House and 40 co-sponsors in the Senate. However, even if that legislation were to get out of the House and Senate, it would likely be vetoed by President Obama, meaning two-thirds of the House and the Senate would be needed for the bill to become law and the changes to be blocked.
These changes, if they go into effect as expected, will exclusively affect the “salary level” test used in differentiating between a non-exempt employee (who must be paid a minimum wage and must receive overtime pay when working more than 40 hours in a week) and an exempt employee (who does not). The salary level test is just one of the three tests which must be met before an employee can be exempted from the minimum wage and overtime rules.
The other two are the “salary basis” test, which requires that the employee is paid a predetermined and fixed salary which is not hourly in nature and which is not subject to reduction because of variations in the quality or quantity of work performed, and the “duties” test, which requires that the employee perform executive, administrative, or professional duties as provided in the DOL’s regulations – but neither of these tests are affected by the rule change.
The new rules will make three main changes:
- The minimum threshold salary for an exempt employee will rise from $455 per week or $23,600 per year to $913 per week or $47,476 per year.
- This minimum (and the separate minimum for a “highly compensated employee” under the rules) will automatically readjust every three years, based on information collected by the Census Bureau regarding salaries throughout the nation.
- An employer can now apply up to 10 percent of any money paid as a “non-discretionary bonus” to employees toward the minimum threshold.
While few in number, the ramifications are many. The DOL estimates that as many as 4.1 million employees will move from exempt to non-exempt as a result of this higher threshold. In fact, about 35 percent of all full-time salaried workers will be below the threshold.
That means many employers have some hard decisions to make. These include (but are certainly not limited to): increasing certain employees’ salaries to ensure they stay in the exempt category; deciding whether to cap all newly non-exempt employees at 40 hours per week (and, more importantly, coming up with new policies and procedures to ensure that supervisors and employees adhere to these new limits); perhaps hiring new employees to work the hours now available because current employees are being limited to 40 hours per week; identifying whether certain employees should still work more than 40 hours per week, even if it means paying overtime; or some, most likely, some combination of the above.
I’ve written about the proposed rules and some of the guidance offered by the DOL for affected employers (and employees) in another post on my firm’s Commlawblog. As I’ve noted in virtually everything I’ve written on this topic in the past, however, I’m not an employment attorney. Thus, the best (and only) advice I can give you is that this may be an occasion where it is worth hiring an employment law specialist to walk you through these changes and help you create a plan of attack for the post-Dec. 1 FLSA world.
Kevin M. Goldberg, an attorney at Fletcher, Heald and Hildreth LLC, is chairman of the National Press Foundation.