Benefits and Compensation, HR Management & Compliance

Prepare Now for Upcoming FLSA Exemption Changes

As most of us are well aware, there are some upcoming changes to the Fair Labor Standards Act (FLSA) that will have an impact on millions of employers nationwide. Namely, the Department of Labor (DOL) is updating the requirements for employees to qualify for the “white collar” overtime exemptions.

In short, the proposed changes will update the minimum salary level required for an employee to qualify under any of the white collar exemptions. Currently, that salary level stands at $23,660 per year ($455 per week). The proposed change would move that to approximately $50,440 ($970 per week) to keep it in line with inflation since the original regulations were created. The exact amount will change annually and be tied to relevant economic indicators so that it stays in line with the regulation’s original intent. (For example, it may be tied to a specific percentile of overall earnings for employees across the country, or it might be tied to price inflation.)

These changes have been in the works since 2014, and a proposal was opened for public comment for a period that ended early September, 2015. Comments received during that time are being taken into consideration now, and the final ruling by the DOL is expected within the next few months—by summer 2016. Once the final rule is published, it remains to be seen how quickly employers will need to comply; it could be in as little as 60 days, but it will likely be before the end of the year no matter what.

For employers that currently have employees who are classified as exempt under the current FLSA regulations but who make less than the new proposed threshold, some changes will be required. Employers essentially have these choices after the new regulations are in place:

  1. Keep the employee’s exemption status intact by increasing the employee’s pay to at or above the new minimum threshold; or
  2. Change the employee’s exemption status to nonexempt, and begin paying overtime for all hours worked over 40 hours in a given workweek.

How to Prepare for the Upcoming Changes

Clearly, these changes are not simple. They will require a lot of planning on the part of all affected employers. Here are some ways to get prepared for the coming regulations changes:

  • Begin by assessing which employees will be affected. Which employees currently are classified as exempt under one of the white collar exemptions, but have salaries below the new threshold?
  • Put together a clear context for decision making. Gather all relevant data points, such as:
    • How many hours per week do these employees currently work?
    • How much overtime would need to be paid if the employee changed status to nonexempt? How much would that cost?
    • How much would it cost to increase salary levels to meet the new thresholds?
    • Will there be a need to hire additional staff (perhaps in lieu of paying overtime)?
    • Are there systems in place now to accurately calculate hours worked (including all overtime) for all affected employees? If no, what would it cost to put such systems in place?
    • If salaries are increased, what impact will this have on the overall organizational salary structure? Will salary bands need updating? Will upper levels in the organizational hierarchy also need pay increases to stay in alignment with their relative level within the organization?
  • Determine exactly what changes will be needed within the payroll system to either change these employees to nonexempt (and pay overtime) or change their salary levels. Create a plan to accomplish either task, depending on which is chosen for a given individual.
  • If any employees will be moving to nonexempt status, create systems for time tracking and create training on how to use those systems and to keep them accurate.
  • Consider whether updates will be needed to your overtime policy and start drafting these now.
  • Start making assessments for individuals and groups to determine the best course of action.
  • Consider the possibility that the DOL may also choose to update the “primary duty” clause of the existing exemptions. If that happens, it may require further changes such as changes to individual job duties or further review of exemption status for more employees.
    • As such, it would be prudent to also take this opportunity to do a job analysis and update job descriptions accordingly to reflect the true duties of the job. This will allow a more accurate comparison against the guidelines in the future.
  • Create a systemic process for review of employee exemption status to ensure that employees are always classified correctly going forward, especially since the salary basis will be changing annually in the future—employee salaries will need to comply to keep the exemption in place.
  • Make plans to effectively communicate all changes to employees to prepare them for the changes and to minimize the disruption these changes may cause.

How prepared is your organization for these coming changes?

*This article does not constitute legal advice. Always consult legal counsel with specific questions.

About Bridget Miller:

Bridget Miller is a business consultant with a specialized MBA in International Economics and Management, which provides a unique perspective on business challenges. She’s been working in the corporate world for over 15 years, with experience across multiple diverse departments including HR, sales, marketing, IT, commercial development, and training.