Update on Proposed Overtime Changes: Are you Ready?
For nearly a year, I have cautioned businesses to stand ready to respond to the Department of Labor’s (“DOL”) proposed changes to the Fair Labor Standards Act (which dictates employee overtime pay). For a time, the distance between idea and implementation gave a sense of false comfort, but as the gap steadily closes, it is crunch time for business owners.
On March 14, 2016, the DOL sent the final overtime rule to the Office of Management and Budget (“OMB”). Once the OMB conducts its review, the final rule can be published in the Federal Register and a date for compliance. Typically, this compliance date is sixty (60) days from publication. In other words – 2 months to tailor your business practices to comply with revisions that are expected to affect millions of employees nationwide.
As a recap, the proposed changes would:
(1) Require that an employee make enough to place them in the 40th percentile of weekly earners to be exempt from the FLSA’s overtime requirements. Right now, an employee making $455 per week, or $23,660 annually, can qualify as exempt. Under the change, for the year 2016, an employee would have to make $970 per week, or $50,440 annually, to be exempt from overtime pay;
(2) Require that the 40th percentile amount be automatically increased each year; and
(3) Raise the salary needed to qualify as exempt under the Highly Compensated Employee exemption from $100,000 to an amount akin to the 90th percentile of weekly earnings for full time salaried workers – in 2016, this equals a $122,148 annual salary.
Given the political climate, I anticipate that the OMB’s review will be short and sweet to avoid Congressional interference with the rule changes. Specifically, Congress has 60 days from the issuance of the final rule to try and pass a joint resolution to block the rule’s implementation. The President would then have an opportunity to veto such a resolution, which Congress would then have 30 days to try to override. This is a complicated process and put simply, according to the Congressional Research Service, the DOL has until May 16, 2016, to release the rule to avoid giving the next Congress and President the opportunity to overturn the rule. A speedy review is also likely given the recently introduced “Protecting Workplace Advancement and Opportunity Act,” which proposes to nullify the DOL’s proposed overtime change. The legislation calls for the DOL to conduct a comprehensive economic study prior to implementing such a dramatic increase.
Employers should not wait out this fight. Even if eventually overturned, preparation for the rule’s likely initial implementation and its dramatic increase to the minimum salary required to qualify for overtime exemption is essential. Pull salary information of employees now and review whether the changes will jeopardize any exemption classifications. If so, you must make some decisions: Do we want to increase the salary of the employees to ensure they remain exempt? Should we reclassify certain employee as non-exempt and start paying overtime? Should we modify our Employee Handbook to prohibit overtime work without permission from a supervisor? Do we need to modify our timekeeping policies? How do we explain these changes to the staff?
If you need help answering these questions and getting your business prepared for the changes, please do not hesitate to contact me.