Does your business have any salaried employees making less than $50,000 per year? Not for long, if a widely anticipated federal law goes into effect.
This week, the US Department of Labor (DOL) is expected to propose new regulations that may abolish the overtime exemption for all currently salaried employees that make less than $50,000 per year.
When enacted, the regulations will greatly reduce businesses’ ability to claim executive, administrative, professional, outside sales, and computer exemptions under the Fair Labor Standards Act (FLSA). The regulations will affect millions of workers and their employers.
Does your business have any managers, assistant managers, supervisors, bookkeeper/accountants, office administrators, or other salaried employees earning less than $50,000 per year? If so, start planning NOW for what appears to be inevitable change.
THE OVERTIME EXEMPTION: FROM $23,660 TO $50,000 WITH THE STROKE OF A PEN
Employers currently need not pay overtime to salaried employees who make more than $23,660 and meet the other criteria for one of the FLSA’s exemptions (administrative, executive, professional, etc.).
However, many employees and pro-labor groups have argued that $23,660 is inadequate as a minimum threshold for “managerial” employees that are often forced to work up to and beyond 60 hours per week.
They also contend that many employers abuse the exemption by falsely labeling manual workers as “assistant managers” and “managers.” In truth, they say, the label is nothing more than an end run around paying overtime to these hard working employees.
The Obama administration and Department of Labor have listened. In a 2014 memorandum to the Secretary of Labor, President Obama said that the exemptions “have not kept up with our modern economy.” The administration then requested that the Department of Labor propose new regulations that could more than double the minimum salary necessary for employers to meet the overtime exemption.
In a “Rewarding Hard Work” blog post just last month, the Secretary of Labor made no bones about his belief that “millions of salaried workers have been left without the guarantee of time and a half pay for the extra hours they spend on the job and away from their families.”
PLANNING FOR THE INEVITABLE CHANGE: WHAT CAN EMPLOYERS DO?
If your business has salaried employees making less than $50,000, it should begin evaluating how it will deal with being forced to pay such employees overtime.
Many employers will simply reclassify the workers as hourly and pay overtime when it is due; others will reduce hourly wages, such that the employees’ overall compensation is the same as it is now when overtime is calculated; and yet other businesses will ensure that no overtime is worked.
Businesses should be careful, however, not to get too “crafty” with any changes — lest such changes violate the FLSA. Consult with legal counsel regarding the legality of changes, as the DOL is sure to be on the lookout for companies trying end runs around the new regulations.
There are many other aspects of the upcoming regulations that will affect the proper classification of workers as hourly or exempt. When the proposed regulations are announced, the HR Law Insider will provide an update on the central issues confronting employers.
One final note: it is possible that the threshold for salaried workers will be something less than $50,000. In any event, it will be substantially greater than $23,660 given the President’s and Secretary’s pronouncements.
Regardless of what businesses will do when the new regulations become law — likely in 2016 — they should annually conduct internal audits with counsel to determine whether employees are properly classified. I have recently defended a number of Department of Labor Audits in the construction, real estate, manufacturing, and restaurant industries. Properly classifying employees and paying appropriate overtime is almost always the DOL’s top priority.
TIME TO MAKE THE DONUTS: THE CLASH BETWEEN EMPLOYEES AND BUSINESSES PLAYS OUT AT DUNKIN DONUTS
This week’s video — “Are Bosses Cheating Workers Out of Overtime” — crystallizes the battle between employees and businesses regarding overtime:
For further information on this or other employment law topics, contact Art Bourque at Bourque Law Firm.