Unless you have been vacationing on an Internet and news free island, you know that the U.S. Department of Labor has proposed an overtime regulation overhaul that would increase the salary level an employee must meet to be considered exempt from overtime pay from $455 per week to $970 per week in 2016 (based on salary projections). That number would increase regularly by a yet undetermined mechanism. This proposal may cause consternation, but it also provides an opportunity for employers to take some constructive steps in preparing for upcoming changes.
Background
It’s worth noting that under current Fair Labor Standards Act regulations an employee must satisfy three tests to be considered exempt from the act’s overtime requirements: the employee must be paid on a salary basis; the employee’s salary must be at least $455 per week; and the employee must meet a duties test. The new rule would more than double the salary threshold from the current level but as of right now DOL has not proposed any specific changes to the duties tests.
The proposal is, for the moment, just that: a proposed change. The Notice of Proposed Rulemaking was officially published in the Federal Register on July 6 and launched a 60-day comment period (see the official NPRM here). That means employers have until Sept. 4 to submit comments on the proposal, which DOL will review before issuing a final rule. (Note: Some experts are already predicting that the comment period could be extended an additional 30 days.) DOL also solicited input on several other elements of the FLSA, but issued no specific proposals. (See related story here.)
Next Steps
So what should employers be doing now? The good news is conscientious employers have time to prepare for the pending changes. There’s no better time than right now to clean house, before the regulations are finalized and DOL turns its focus to enforcement strategies. Below you’ll find some talking points for convincing your executives that this is important enough to start thinking about now and some tips for practical steps you can take to get ready for any pending changes.
Why This Is Important
- Your overtime obligation could significantly increase overnight if you have employees who will be impacted by the changing regulations.
- If the regulation is approved as it’s currently written, it would make at least 5 million additional workers eligible for time-and-a-half overtime, according to the administration.
- As with any new major initiative, DOL is likely to make enforcement of the regulation a top priority once it is implemented, which would leave any employer that didn’t take the changes seriously open to significant financial liability, not to mention civil lawsuits and associated costs.
- However, if you start planning now you may be able to strategically mitigate your risk. If you have job classifications and descriptions that you worry need updating or that were never done properly in the first place, the new rules provide the perfect opportunity to clean house as you comply with evolving federal laws.
Practical Tips
Think about these important first steps as you evaluate your company’s practices in light of the new regulations and plan how to deal with any pending changes.
Operational Strategy —Think about how your operations and budgets will be affected if you have to reclassify your exempt workers who earn more than $455 but less than $970 per week. Consider:
- Will you reduce hours to avoid overtime premiums?
- Will you hire more workers to fill in gaps and keep overtime to a minimum?
- Will you reduce equivalent-hourly pay so workers’ hourly wages plus overtime premiums still equals their current salaries?
Manager Buy-in — Ascertain whether those in control of day-to-day operations (your senior executives and decision makers) are supportive of performing a classification audit or job analysis.
Communication Strategy — The way you communicate with employees about any changes will make a difference in how well they are implemented. Employee morale could suffer if you don’t properly communicate what is happening.
Classification Audits and Job Analysis Initiatives — Once you have your top level strategy in place consider whether a reclassification of segments of your workforce may be in order. Keep in mind that assessing how you classify and pay employees may be a tremendous opportunity, but it will also be a significant undertaking.
- Don’t underestimate the importance of conducting a job analysis or classification audit for your FLSA compliance, and beyond. Job analysis not only will reveal which positions are exempt from the FLSA, but it also will provide useful data in a number of other areas.
- Job analysis is a critical way for an organization to establish a solid basis for its job descriptions, compensation and performance appraisal systems, assuming valid criteria and methodologies have been used.
- Job analysis also demonstrates the employer’s underlying good faith in making objective employment-related decisions. It also gives an employer evidence that it is making the best decisions possible based on the information it has on hand.