In 2016, employers can expect significant changes to federal wage and hour laws as the U.S. Department of Labor (“DOL”) finalizes new regulations related to the payment of overtime under the Fair Labor Standards Act (“FLSA”). The basic premise of the FLSA, which applies to virtually all Idaho employers, is that employees who are not exempt from coverage must be paid overtime for hours work in excess of 40 hours in a work week at the rate of one and one-half times the employee’s regular rate of pay. Limited exceptions to the FLSA’s overtime obligations exist for certain types of employees and for employees in particular industries and occupations. The most common exemptions are for white collar employees, i.e., executive, administrative and professional employees. An employee can be considered exempt only if the employee’s primary duties are of an exempt nature, the employee is paid on a salary basis, and the employee’s salary meets a minimum salary level (these are known as the “duties test,” the “salary basis test,” and the “minimum salary test” respectively).
The DOL has announced proposed revisions to the FLSA’s overtime rules that include two key changes to FLSA regulations:
• Currently, exempt employees must receive a salary of not less than $455.00 a week or $23,660.00 per year. The rule proposes to double this minimum salary level to approximately $970.00 per week, or $50,440.00 annually. Notably, this proposed level is only a projection and may increase or decrease with the final regulations.
• The proposed rule contemplates the establishment of a mechanism for annually updating the minimum salary test for these exemptions going forward. For example, minimum salary amounts could be adjusted annually based on changes in inflation as measured by the Consumer Price Index. The minimum salary level was last updated in 2004. The idea behind this change is to avoid large gaps in this adjustment and to add a measure of predictability to the minimum salary level.
During the rulemaking process, the DOL also sought comments on whether it should revise the duties tests for the various white-collar exemptions based on the belief that the current duties test does not effectively screen for true exempt-status employees. For example, the DOL asked for comments on whether it should implement a hard 50 percent limitation on work deemed nonexempt or overtime eligible. Such a change could eliminate the exemption for an employee who manages while contemporaneously performing other nonexempt type duties.
In its most recent regulatory update, the DOL announced its plans to publish final regulations on these wage and hour updates in July 2016. If so, employers should expect that the time period between the announcement of the final regulations and their effective date may be short. Therefore, planning may be critical. While employers should not make any actual changes until the regulations become final, they are well-advised to consider auditing their current employee classifications to determine what changes may need to be made to the classification of positions when the proposed rule becomes final. Those changes may include raising salaries for certain employees to meet the new minimum salary level or reclassifying employees from exempt to overtime-eligible status. Reclassifying exempt employees to overtime-eligible status in turn requires the consideration of a broad range of issues, including communication strategies, training, timekeeping policies, and morale concerns. In the event that the duties test is also revised, employers will additionally need to consider a more in-depth review of their exempt status employees to ensure compliance.
These 2016 changes will bring sweeping changes to federal wage and hour laws. They will be particularly burdensome on rural states like Idaho and will significantly impact retail and non-profit organizations, among others. In sum, employers are encouraged to engage in a planning process now so that they are prepared to respond to these regulatory changes once they become effective.
Steve Berenter is the chairman of Hawley Troxell’s Employment and Litigation Practice Group and a member of its board of partners. He may be reached at firstname.lastname@example.org. Kara Heikkila is a member of the firm’s employment and litigation practice groups and is a frequent speaker on employment law matters. Kara may be reached at email@example.com.