If you were hoping to spend a quiet summer in the office, no such luck this year. Last week, the Department of Labor (“DOL”) announced its proposal for updating the overtime exemptions for white-collar employees including executives, administrative and professional employees. And employers are shocked by the new numbers.
The most significant aspect of the DOL proposal increases the current salary threshold for exemption from $455 per week ($23,660 annually) to $970 per week ($50,440 annually). In other words, under the new proposal employee paid less than $50,440 would be classified as non-exempt and become eligible for overtime pay. The DOL estimates that this change will extend overtime opportunities to nearly five million white-collar workers.
If this regulation were to be finalized, companies will be forced to move employees from exempt to non-exempt status. This change will likely limit employees’ hours and wages, put the kibosh on workplace flexibility and employee growth potential.
In addition, the DOL proposes to increase the overtime threshold exemption for highly compensated employees from $100,000 to $122,140 annually.
Finally, the DOL proposes to establish a mechanism for indexing these compensation levels going forward. This means employers will need to monitor annually the exemption status of employers whose salary is slightly above the threshold.
The proposed regulations do not change the current duties test for the professional, administrative and executive exemptions. That’s really the only piece of relative good news. Employers won’t have to be concerned with a new definition for white collar exemptions besides the huge jump in salary.
Takeaways for Employers
- Stay put – Those are proposed regulations so no immediate changes are required. Implementation of the new rules is expected to happen in 2016 but no date has been set by the DOL.
- Comment – Provide comments on the proposed new rules and its impact on your business to the DOL via Regulations.gov by September 4, 2015. Consider copying your Senator and Representative on those comments.
- Plan – Prepare for implementation in 2016 by conducting an audit to identify exempt employees earning less than or close to $50,400.
- Consider this as an opportunity – If you have employees who are improperly classified under the current regulations, this could be a golden opportunity to change their classification according to Tammy McCutchen at the SHRM National Conference. “You can blame it on the government. [The employer’s] message is that we’re making this change because the government has changed the classification rules.”
- Communicate – Don’t forget your employees. They have heard about the proposed changes and have questions about their future classification. Share your organization’s plan with them even if you adopt a “wait-and-see” approach for now.
- Contact us today for a free consultation. We provide options and solutions to manage the transition to the new exemption salary levels. Planning ahead with 2016 budget in mind will be critical to a successful implementation.