The Department of Labor’s (DOL's) proposed changes to the overtime regulations under the Fair Labor Standards Act (FLSA) have been officially released. SHRM is currently reviewing the proposal to ascertain the impact these changes to the overtime exemptions will have on workplaces across the country and is in regular communications with our members about this change. We wanted to share this information with you as well so that you can prepare for what lies ahead.
1. Significant Impact. Employees and employers across every industry and sector will be impacted. Most employers covered by the FLSA will need to analyze employee classifications and make other changes, by a likely 2016 effective date that will be established in the final rule. According to DOL, 11 million employees will be impacted.
2. Salary Level Will Increase. To be exempt currently, workers must make more than $455/week ($23,660 annually). The proposed rule sets the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers, which for 2013 was $921 per week, or $47,892 annually. If the 40th percentile approach is adopted, the 2016 level is projected to be $970 a week, or $50,440 annually. This will impact all sectors, but it will disproportionately affect the non-profit and service sector industries as well as certain geographic areas of the country.
3. For the First Time, DOL Proposes to Automatically Raise the Salary Level. The Department is proposing to automatically update the salary level (including for highly compensated employees) on an annual basis, either based on percentiles of earnings for full-time salaried workers or based on changes in inflation.
4. Changes to Highly Compensated Employees (HCEs). The department is proposing to set the HCE annual compensation level equal to the 90th percentile of earnings for full-time salaried workers ($122,148 annually), or based on changes in inflation. Currently, in order to fall under this exemption an employee must earn at least $100,000.
5. Feedback Sought on Duties Test and Nondiscretionary Bonuses. While no changes have been proposed yet, the regulation acknowledges challenges associated with the duties test and seeks additional examples regarding specific occupations. Similarly, the department wants to hear from employers about the possibility of including nondiscretionary bonuses to satisfy a portion of the standard salary requirement.
6. State Law Application. Employers in states with wage and hour laws that are more restrictive in their application (for example, California) will need to review their coverage requirements under federal law in light of these proposed changes.
7. Workplace Flexibility Reduced. Changes will require employers to reclassify a significant number of employees from exempt to non-exempt status, requiring tracking of hours worked, resulting in the loss of workplace flexibility.
8. Our Members Are the Voice of the HR Profession. SHRM has created a special section on its HR Policy Action Center dedicated to content and advocacy efforts surrounding the upcoming overtime regulations.