White collar worker overtime regulations may be experiencing a huge change–is your business prepared?
This change has been presented by the Department of Labor (DOL), which proposes revising which white collar workers are eligible for protections concerning minimum wage and overtime pay as mandated by the Fair Labor Standards Act (FLSA).
The current determination as to whether an employee is exempt or non-exempt, according to the Notice of Proposed Rulemaking (NPRM), depends on the following: “certain minimum tests related to their primary job duties and be paid on a salary basis at not less than a specified minimum amount.”
Right now, the DOL’s salary threshold exemption for white collar workers is $455 per week, or $23,660 annually.
Understanding Exempt and Non-Exempt
Knowing which of your employees are exempt or non-exempt for overtime pay can be a head scratcher. Make sure you have them straight and clear in your head!
- Exempt from overtime pay: Although they aren’t eligible for overtime pay, being exempt means these employees require a non-fluctuating base salary–regardless of how many or little hours they work. These employees also need to meet specific criteria as dictated by the DOL about their duties at work.
- Non-exempt are for employees that do not meet the DOL’s criteria about work duties. This means a minimum wage is required to be paid to them for all working hours, as well as overtime for hours exceeding the full 40 hour workweek.
What You Need to Know About the Proposed Rule
A main focus for the NPRM is adjusting white collar workers’ salary and compensation so they are exempt from overtime pay.
Here are some main changes the DOL proposes for 2016:
- Raising the standard salary level to the 40th percentile for weekly, full-time workers on salary (from $455 a week, or $23,660 a year to $970 per week and $50,440 a year),
- Raise the yearly compensation requirement to exempt highly compensated employees (HCEs) to the 90th percentile of weekly wages of full-time workers on salary to $122,148,
- To establish an automatic system for salary and compensation level updates for the future; this will help ensure an effective test for exemption.
You may be asking yourself: What does this help accomplish? The DOL thinks the proposed changes will minimize the misclassification of employees based on the salaries they receive specifically. This will simultaneously prevent the amount of employees that are exempt unacceptably high.
In other words, this will minimize confusion between what workers are exempt and non-exempt.
What You Need to do as an Employer
- For salaried, exempt employees that are eligible for exemption(s), you will need to pay them the projected new base minimum salary, which is $970 weekly earnings.
- For exempt employees that aren’t going to be paid the $970 a week, they must be treated as non-exempt. This means paying them for working over 40 hours a workweek and tracking those hours accordingly.
- Any future DOL adjustments for exemption(s) mean you’ll have to double-check that your employees still fit the bill for using exemption(s).
The Future of Automatic Updates
Because many rulemakings have a huge lapse of time, this proposed update is seeking to improve the salary level test. Time and experience has shown the salary level test measures the status of exemption well–but only if it’s updated.
Like we mentioned above, figuring out which of your employees are exempt or non-exempt is an important first step. Consider consulting with an HR professional if you are uncertain about these proposed changes and how they’ll affect your business. An HR expert can give you tailored information and guidance regarding your employees’ exempt or non-exemption status.
Ways This Will Affect Your Employees
While this obviously impacts you as an employer, it’s important to consider how this will affect your employees, too! Depending on how close the end result is to the DOL’s proposal, this will likely change many employees who are currently exempt to being non-exempt.
Even though this isn’t your fault, and you’re required to comply with the law, your employees may blame you for it. Much of this heat can be dealt with by addressing the matter with your employees as soon as possible.
Here are some possible problems that you may run into:
- Any employees that have moved up from “clocking in,” may feel like they’re being demoted by this change to non-exempt status. The root of this is because as salary, employees don’t feel like they’re being “watched over” anymore.
- These changing overtime regulations are going to necessitate that you make financial decisions. Are your non-exempt employees expected to maintain their level of productivity even though they can only work 40 (or less) hours? The alternative is paying them less, but expecting them to work overtime. To employees, this means either a loss of responsibility or a dock in wages; this can make them feel like they’re being demoted.
- Because newly non-exempt employees will feel like their paycheck is related to their amount of hours worked, this decline in flexibility and reduction in a work-life balance can easily lead to resentment.
You must adjust to these new rules if they are implemented, so be ready to present the silver lining to your employees to soften the blow:
- If you’re taking responsibilities away, let employees know it in no way reflects on their performance or abilities.
- Let them know that being non-exempt means that extra work amounts to more money (referring to overtime pay that exempt employees cannot get).
- While before employees could have worked long afterhours, by limiting the amount of hours, they’ll almost always be heading home by 5PM, ergo possibly improving their work-life balance, which translates into more productivity.
- Make sure they know that you’re legally obligated to track their time, and that it’s not meant as a big brother tactic of watching over their shoulder.