working-overtime-corbis_custom-8817388f61ade578a6964c74bc8352b14f1c4fdd-s900-c85The Fair Labor Standards Act (FLSA) tells employers how they must pay their employees.  It requires that employees be paid at least minimum wage for all hours worked and that employers pay them time-and-one-half for all hours worked over 40 in the workweek.  There are some exemptions from these rules.  Currently, the Department of Labor (DOL) has issued proposed rules that would change some aspects of the “White Collar” exemptions that are defined in the regulations.  The result of these proposed changes is expected to dramatically decrease the number of individuals who may be considered “exempt.”  Here’s what you need to know:

1) The final rule is expected to raise the minimum guaranteed weekly salary for exempt employees to $970 per week ($50,440 per year).  It is likely the rule will include a provision to adjust this salary annually for inflation.  It is uncertain whether or not bonuses, commissions or other incentive payments may be included when calculating an exempt employee’s pay for purposes of meeting the minimum pay requirements.

2) Final rules were submitted to the Office of Management & Budget on March 15 for approval and are expected to be published no later than early July.  It’s been predicted that final rules could be published as early as the end of April or beginning of May.

3) Proposed rules left the door open for the Department of Labor to rewrite the duties test for each of the 5 white-collar exemptions.  However, there has been no announcement from DOL representatives stating whether or not the duties tests have been updated.

4) The new regulations will become effective 60 days after the final regulations are issued.

5) There is a proposed bill in Congress seeking to delay publication of the final rules. However, this bill probably won’t be passed because President Obama will likely veto it and there doesn’t appear to be enough support for the bill to override the veto.

If your company hasn’t already done so, now is the time to identify those individuals who may be affected by this change. Once you’ve identified them, your company can then begin the process of determining what changes need to be made in order to either maintain your employees’ exemptions and/or reclassify them as non-exempt.

These changes will likely require employers to adjust their payroll budgets. Employers will need to analyze whether it is more beneficial to increase an exempt employee’s pay to meet the new wage requirement or convert them to hourly, non-exempt employees.  Once the decision is made to convert an employee to non-exempt, the individual will have to begin recording their time and the company will have an obligation to pay them overtime for any hours worked over 40 in the workweek.

If the duties tests are revised, the company will need to conduct an even more thorough evaluation of an individual’s exempt status in order to determine whether or not they need to convert certain positions to non-exempt and begin paying overtime to those individuals who fill those roles.

The Department of Labor has posted FAQs and a Fact Sheet on their website to explain the nature of the changes they have contemplated.

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