Get Ready for the New Wage & Hour Regulations (Part 2)
By James T Stodd, SPHR, SHRM-SCP
July 1, 2015
In Part 1 of this message, we advised readers about the expected changes in the wage and hour regulations affecting the classification of salaried (exempt) and hourly (non-exempt) employees. At that time, it was my intention to release a Part 2, which provides some suggestions about what employers should do in light of the expected proposal, and to do so within the next several days. However, TODAY the DOL actually released the proposed regulations!
The proposed standards are simpler, but more challenging, than expected by some of the insiders and experts who had been speculating. In short, the proposal would raise the minimum salary threshold for exemption in virtually every state; including states like California that already have a higher threshold established under state law. A link to the DOL’s proposed regulations(1) can be found in the endnotes below. Here are the “highlights” assuming these regulations are approved and finalized as proposed:
- The minimum salary threshold will increase from the current $455/week ($23,660/year) to $921/week ($47,892/year),
- The threshold for “highly compensated employees” (those automatically “exempt” regardless of the “duties test”) will be increased from the current $100,000/year to $122,148/year,
- In order to prevent the salary levels from becoming outdated, the DOL is proposing to include a mechanism, using either a fixed percentage of wages or the Consumer Price Index (CPI-U), to automatically update the salary threshold on an annual basis, and
- For now, the DOL has backed away from modifying the standard “duties test” applicable to the white-collar exemptions. Rather, they intend to only seek public comment at this time under the belief that raising the salary and compensation thresholds, as noted above, will reduce the need for a longer, more quantitative, and more complex “duties test”.
What Employers Should Do
Assuming the proposed regulations stand-up to public scrutiny, here are things employers should consider during the forthcoming public review process:
1. Identify any salaried position that might lose its “exempt” status under the newly proposed minimum salary threshold ($921/week or $47,892/year).
2. Monitor, or determine the best you can, the amount of overtime (in excess of 40 hours per week) any employee paid less than the new threshold may be working, or has been working.
3. Based upon that analysis, consider various scenarios and prepare to either a) adjust the salary upward to at least the new minimum, b) reallocate those activities resulting in the overtime, or c) pay the necessary overtime. 4. Look closely at your job descriptions to ensure they accurately reflect the nature and amount of “exempt” duties and responsibilities,(2) particularly for those positions that may just make it over the proposed minimum salary threshold. Remember, the “duties test” is not going away. Rather, the DOL is not proposing to make it more cumbersome, complex or challenging at this time. Look closely for the following:
- First level supervisors that have only 1 or 2 direct reports, spend limited time actually directing the work of others, and/or have limited input or authority for hiring, firing, promotion, demotion, and other decisions regarding employee classification.
- Administrative personnel who spend most of their time doing routine “clerical work” that is not directly related to management of the business, the operations of the business, or customer/client affairs, or requires limited independent judgment and discretion.
- Individuals who may be employed in the capacity of a “professional”, but don’t have at least a bachelor’s degree in a science, profession, or specialized field of instruction. Also questionable will be those who don’t perform work that is predominately “intellectual” in nature, and requires the exercise of judgment and discretion based upon their professional training. Remember, the person you employ may have a PhD or law degree, but if the job they perform is routine, repetitive and lacks the requirement that they apply that education, they’ll likely be regarded as “hourly”.
5. Redistribute work so that those in salaried positions are truly performing the bulk of “exempt” work, and that it is not too thinly scattered about. Make the lines of demarcation very clear.
Finally, there is the issue of “timing”. Employers should start the process of evaluating their current practices immediately, but there is no need for panic. The proposed regulations have yet to be posted in the Federal Register for public review, comment, and possible hearings. That process will likely extend over a period of 90 to 120 days prior to finalization. And, while it is always possible for the “effective date” of the final regulations to be the same as the date they are issued, the effective date is more likely to be set for some day further out in the future, perhaps even as far out as 2016.
1 US Department of Labor, Wage and Hour Division, 29 CFR Part 541, RIN 1235-AA11, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees http://www.dol.gov/whd/overtime/NPRM2015/OT-NPRM.pdf
2 US Department of Labor, Wage and Hour Division, Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act (FLSA) http://www.dol.gov/whd/regs/compliance/fairpay/fs17a_overview.pdf