Karla Heikkila, The Daily Record Newswire
On May 23, the U.S. Department of Labor published final regulations updating how certain exempt-status employees must be paid under the federal wage and hour law, the Fair Labor Standards Act.
These exemptions are commonly referred to as the "white collar" or "EAP" (Executive, Administrative, and Professional) exemptions to the FLSA, which allow employers in certain circumstances to avoid payment of overtime. The long-anticipated final rules represent some compromise to the 2015 proposed regulations that prompted over 270,000 comments from throughout the nation.
The final regulations will be effective for virtually all employers on December 1. These rules are expected to transfer income from employers to employees through higher earnings, either in the form of a raise or in overtime payments, and are conservatively projected to cost employers $1.2 billion per year over the next 10 years.
Two key changes to the rules for overtime will be effective in December. The first is the minimum salary level that must be paid to an EAP employee will more than double, from $23,660 per year to $47,476 per year (or $913 per week). In theory, this is not a minimum wage requirement, as an employer is only required to pay this amount if they are claiming the application of one of the white collar exemptions. But the practical effect is this significantly higher minimum salary level will mean millions of fewer employees will qualify for the EAP or white collar exemptions.
The second key change is that the minimum salary level will be updated every three years in order to prevent lags that subsequently lead to these dramatic adjustments, with the next increase effective January 1, 2020. This also presents a compromise to the proposed rules, which suggested an annual update to this number based on a fixed percentage, which over time would have dramatically increased this minimum salary level. The minimum salary level is projected to jump to $51,000 in 2020. Employers will be given the final adjusted number with 150 days' notice prior to the effective date of any change starting with the January 2020 update.
Importantly, the final rules make no change to the "duties test," or portions of the EAP rules mandating employees engage in certain duties for the rules to apply, which would have further complicated these changes and eliminated whole classes of workers from exempt status.
Despite significant feedback, there are no exceptions to the new rules for non-profit organizations, or for small businesses in rural and low-wage states. The DOL published a series of updated resources and guides for small businesses, higher education institutions, non-profit organizations, and other employers that will be particularly hard hit by these new rules.
Employers can consider several options for compliance. Employees who are exempt and under, but close to, this new minimum threshold can be raised to the new salary level, particularly if they generally work more than 40 hours in a week. Conversely, employees who are well under this level and who do not work over 40 hours in a week may simply be converted to overtime eligible status, and be paid either on a salary or hourly basis.
Many employers project managing overtime or hiring more part-time employees to cover various positions, with the downside risk of fewer hours, fewer benefits, and less flexibility for these new overtime eligible employees. Employers should take the extended notice period to plan for and communicate these changes prior to the December 1 effective date.
-----
Kara Heikkila is an attorney with Hawley Troxell in its Boise, Coeur d'Alene and Idaho Falls offices. She represents and advises employers in all aspects of employment law compliance. Kara can be reached at kheikkila@hawleytroxell.com.
Published: Thu, Jun 09, 2016
