Are you ready?
In roughly 90 days the Department of Labor’s final rule expanding the availability of overtime pay to workers takes effect: the minimum salary level for exemption status for overtime pay increases to $47,476 annually (or $913 per week); and the compensation level for HCEs (Highly Compensated Employees) increases to $134,000 annually. If you have part-time employees previously treated as exempt, they’ll need to earn at least $913 per week to remain that way. While recently-introduced legislation (H.R. 5813, the Overtime Reform and Enhancement Act) proposes a more gradual phase-in of changes, employers are advised to be prepared for a December 1 implementation of the final rule.
General consensus is that the new regulation is not employer-friendly – the costs are both financial and cultural. On the surface, telling employees who were exempt that they are now overtime-eligible seems like an easy sell. But it’s not uncommon for employees to have a perception that non-exempt jobs are valued less within the organization. Converting from exempt to non-exempt will require more scrutiny around hours worked and how time is reported. And how will you credibly explain why some employees received generous off-cycle pay increases in order to raise their base to the threshold for exemption while those already above the threshold won’t see any increase until the normal increase cycle? It’s a recipe for employee dissatisfaction and pay compression.
What are your choices?
There’s no simple solution or singular best approach. Factor the following into your decision:
What hasn’t changed?
The FLSA law applies to:
- Employees of federal, state and local governments
- Any private enterprise or non-profit organization with annual gross sales/business of $500,000 or more
- Employees of organizations that do not meet the $500,000 gross sales requirement are covered if they engage in interstate commerce
Note that private organizations cannot provide comp time in lieu of overtime pay.
Both criteria must be met to meet requirements for exemption:
- Employee must be paid a fixed salary of at least $47,476 annually.
- Primary job duties must pass the duties test for one of the following: executive, administrative, professional, outside sales, or computer employees.
(There are specific exemptions from overtime pay. See the DOL website for details.)
The DOL has an extensive FAQ. Read it all here: