The new FLSA overtime exemptions are the source of anxiety for many employers who are waiting on edge for the release of the Final Rule. We were supposed to get this new guidance in late 2015, but were told at the last minute we would likely see the release in late 2016. So, what has changed? Will we really be getting the new Rule in July? Read the article below and see what the attorneys believe.
By Bill Pokorny Attorney and partner at Franczek Radelet February 1, 2016
Over the last few months we’ve been asked on an almost daily basis when the DOL will be publishing its hotly anticipated white collar exemption rules. The short answer is still, we don’t know. A few months ago, the word was “late 2016,” which made some sense due to the extremely high volume of comments the DOL received during the 60-day public comment period.* Now, signs point to an earlier release.
According to Law360, DOL Solicitor M. Patricia Smith told attorneys at a New York State Bar Association meeting that the final rules would likely be published in July 2016. Assuming an effective date 60 days after release of the final rules, a July release would mean that employers have to comply with the new rules by September 2016. The DOL’s current regulatory agenda for the new rules also lists an anticipated final rule date of “7/00/2016.”
So what does this mean for employers?
First, if you haven’t already figured out how to address the immediate increase in the minimum salary for most exempt positions from $455 per week to an expected $970 per week, you had best get to work. Start looking now at exempt jobs with salaries below about $51,000 per year. Figure out how many hours those employees work and whether it would be better to re-classify them as non-exempt (meaning you need to track hours and pay overtime) or bump up their salaries to meet the new threshold. Also figure out how those changes affect the rest of your compensation schedule. If salary compression at the low end of your scale is already an issue, this is only going to make things worse.
Second, remember that this is not a one-time problem. The new rules provide that the minimum salary level will be adjusted annually based on the 40th percentile of non-hourly paid employees. While this seems innocuous enough, a small wrinkle that may not be immediately apparent is that the 40th percentile will adjust from year to year. Once the new rules take effect, this means that the bottom of the sample will effectively drop away, making the 40th percentile in the following years correspondingly higher. According to at least one analysis, the proposed formula could lead to a minimum salary level of $1,393 per week ($72,436 per year) after just five years. Even if that estimate is high, you should assume that the minimum salary will continue to rise, perhaps significantly, and plan accordingly.
Third, salary levels should not be your only concern. While the DOL did not propose any changes to the current duties tests, the Department did ask for public feedback on some possible changes. In particular, the Department inquired about changes to the way that “primary duties” are measured. Currently, the regulations define “primary duties” qualitatively. An employee’s primary duties are the most important parts of the job. They are not necessarily the duties that the employee spends the majority of their work time performing, and there is no fixed limit on the amount of time an exempt employee can spend on non-exempt work. The DOL specifically requested comments on whether to change that approach, and may be considering a shift to a test more like California’s, which puts the burden on employers to show that exempt employees spend at least 50% of their working time performing exempt work.
Any changes to the duties tests in the new final rules are likely to face some serious court challenges. However, employers shouldn’t pin their hopes on litigation alone. Start looking at your exempt positions and analyzing which ones may be at risk if the duties tests do change. If you need to re-classify any employees, the period between issuance of the final rules and their effective date is your window to make the change. It’s going to be a narrow one, so don’t miss the opportunity.
*For those of you keeping track, the number is 293,371. You can read them all here. If you spend an averge of three minutes on each comment and read nonstop, it should only take you about 68 days to get through them all.
Until Next Time, Be Audit-Secure!