The U.S. Department of Labor (DOL) is in the process of amending the overtime exemption rules under the Fair Labor Standards Act (FLSA). Currently, the FLSA provides an exemption from overtime pay for employees who meet certain tests regarding their job duties and who are paid on a salary basis at no less than $455 a week.
This new rule would dramatically increase the number of employees eligible for overtime pay by the end of 2016. Under the proposed new regulations, the threshold for exempt status would go from $23,600 per year ($455 per week) to $50,440 per year ($970 per week) – an amount in the 40th percentile of earnings for full-time salaried workers, according to the Bureau of Labor Statistics (BLS). The DOL estimates that this increase in salary threshold for exempt status would affect approximately five million workers, making them eligible for overtime pay. In California alone, 420,000 workers would be affected.
Why the increase in exempt status salary?
President Obama directed the DOL to change their minimum pay for exempt status because more and more employees worked in excess of 40 hours per week for pay that would put them below the federal poverty threshold. The wage threshold hasn’t changed since 2004, which is the only time it has been updated since the 1970s. Importantly, the new regulation would also include changes to the salary threshold every year, based on wage growth and inflation.
In addition to the change for exempt status, the DOL also proposes changing the minimum salary to qualify for highly compensated exempt employee status (“white collar” workers) to $122,148 from the current $100,000 threshold.
According to the National Law Review, there is a possibility that there will also be several changes to the exempt status definition, including changes to job duty requirements.
With all of these changes anticipated to go in to effect by the end of 2016, small and midsize businesses need to prepare ahead of time for the effects these changes will have on their businesses.
How can an SMB prepare for the anticipated increase in salary for exempt status?
1. Audit your exempt employees vs. your non-exempt employees and see if any exempt employees currently fall under the anticipated $50,440 annual salary threshold.
For a more in-depth analysis of your business, contact Jon Siders at TriNet. Jon.Siders@Trinet.com (858) 333-7509
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