A new rule related to who is— and who isn’t—exempt from overtime pay is expected to be finalized soon, which means employers should be prepared to change their white-collar overtime policies to become compliant.
“This regulation…would update the Fair Labor Standards Act (FLSA) to more than double the salary threshold at which workers are exempt from overtime requirements, with the salary level increasing automatically over time,” writes Barbara Merrill for The Hill.
Notably, the new rules will drastically increase the FLSA’s salary threshold, writes Christian Schappel for HR Morning. “The current minimum salary a worker has to be paid to be exempt from overtime is $455 per week or $23,660 per year,” he writes. “Under the proposed rule, it would jump to $970 a week or $50,440 per year.”
The changes could be finalized soon. With the rule submitted for review earlier than expected, it’s likely that employers will be seeing the rule in its final form in May. “The DOL has remained steadfast about one thing: The rules were likely to take effect 60 days after being published, and that still appears to be the plan,” Schappel writes.
The salary threshold, in particular, has been a source of debate as the rule was proposed, writes Allen Smith for the Society for Human Resources, and some have said the “exempt or nonexempt classification decisions are particularly challenging, as they rely on objective and subjective factors.” The jump in salary threshold is a 113 percent increase, Smith writes, and could be especially difficult for small employers.
“In addition, reclassifying employees and adjusting salaries in response to the new salary threshold (could) cause wage compression issues with entry-level and midlevel employees’ salaries nearing the level of their managers,” Smith writes, quoting Nancy McKeague, the senior vice president and chief of staff at Michigan Health & Hospital Association. “In order to offset these issues, (employers) will need to provide additional salary increases for the managers and directors, adding to the initial payroll costs.”
In addition, the rule could be especially challenging for providers of Medicaid-funded services who are already dealing with other unfunded mandates, Merrill writes. “Though no doubt well-intended, if this rule is implemented as proposed and no additional funding is provided, many providers will have to make painful choices about the services they can provide,” she writes. “Some are likely not to survive this hit.”
Once the rule becomes final and despite the challenges, employers will need to examine how to come into compliance. They’re likely to have 60 days to do so, Schappel writes. “Employers can expect to have to be in compliance with the rule this summer—most likely by the end of July, but possibly sooner,” he writes.