Huge increase in exempt salary level minimum proposed by Department of Labor
Companies urged to examine potential impact NOW to prepare
The Department of Labor (DOL) recently issued a proposed rule to increase the minimum salary requirements under the Fair Labor Standards Act (FLSA) for salaried exempt employees. This would require that ALL exempt employees be paid no less than $50,440 annually starting in 2016—almost doubling the current minimum of $23,660.
The proposed rule would also increase the minimum salary for Highly Compensated Employees to 90% of the national earnings of full-time salaried workers ($122,148 annually in 2016). These numbers will go up annually in the future by a percentage. So, this is not a one-time change; these minimum salary thresholds will continue to increase each year.
“The President specifically mandated that the DOL raise the minimum salary level, but few anticipated that the number would be this high,” says Leslie Day, Precision Payroll’s Director of HR Consulting. She notes that this new exempt salary threshold was created by marking a ‘line in the sand’ at 40% of the average national earnings level for full-time exempt employees. The DOL has stated that this new salary level is an intentional attempt to force 40% of the exempt workforce toward a classification change to non-exempt status, where the employees must be paid for overtime.
“This will create an unprecedented level of change in the business community,” Day says, noting that the change will impact 4.6 million salaried exempt employees. “It is critical that business owners and top management try to get a grasp NOW on how it will conceivably affect their business.”
The rule is currently posted in the Federal Register, where comments can be logged for 60 days, ending in early September. Then, following a review period, experts foresee the rule being finalized, and that any adjustments to the proposed threshold would be small. The DOL has also asked for comments on additional possible changes to related areas of the FLSA, implying that more changes may be included in the final outcome.
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Precision Payroll offers an HR Help Desk service that can help employers wade through questions, issues and options as they transition to this new administrative rule. In addition, Precision HR can perform an audit of a company’s exempt positions to determine if they meet the criteria for being exempt. For more information, contact Leslie Day at firstname.lastname@example.org or 630-785-2205, or Bonnie Kohlmeier at email@example.com or 630-812-2392.
Options Employers Will Have If the Rule is Implemented
- Increase the exempt employee’s salary to that proposed in the new regulations so they can maintain the exempt status.
- Keep the salary the same, reclassify the job as non-exempt, and pay any worked overtime hours based on the employee’s regular rate of pay. This is calculated by dividing the salary by 2,080 (hours per year for 40 hours per week; adjust for lesser hours). Overtime may be 1½ times or double time the base rate, dependent on legal requirements. Any bonus payments may need to be included.
- Reduce the employee’s salary to a lower rate so total earnings do not change after overtime or bonus is paid. This would require an understanding of the number of overtime hours worked in the past or an estimate of overtime to be worked in the future.
- Keep the salary as it is currently, keep the classification as salaried exempt, and eliminate the employee working any overtime hours. Even 15 minutes over in a week can result in the legal requirement to pay overtime, so you would have to closely monitor when these employees come and leave work each day and potentially force them out the door – no exceptions! No overtime = no violation of the law. The legal risk here is for non-paid overtime. A downside to this option is that, without any formal record of hours worked, you are at risk of being unable to prove the hours these employees actually work. This option is very risky.
- Some combination of the above options.
Additional Worksite Solutions:
Interested in enhancing your current employee benefit plan, with no added to cost to your benefits budget? The U-Select program offered through Precision Payroll can do just that.
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