In July of 2015, the U.S. Department of Labor (DOL) issued a proposed rule that would significantly change how eligibility for overtime wages is determined.
The biggest change? The proposed rule would more than double the salary threshold employees are required to meet in order to be considered exempt for overtime pay under the white collar exemptions of the Fair Labor Standards Act (FLSA). (The current threshold is $26,669/year – the proposed rule would raise that threshold to $50,440/year.)
Other changes include raising the highly compensated employee annual compensation and implementing a mechanism that would automatically update the salary and compensation thresholds on an annual basis.
The DOL’s estimated timeline for this proposed rule going into effect is sometime in July, although as of now it’s still unclear if that targeted date will actually be when the DOL releases the final rule.
[Related content: Infographic: A visual overview of the DOL’s new overtime rule.]
If the new rule is implemented as-is, as many as five million previously exempt workers (workers currently making less than $50,440) would become newly eligible for overtime pay. The rule would also make overtime compensation eligibility rules more clear for another six million workers.
The White House estimates that complying with the new rule will cost employers between $239 and $255 million per year, but those in the business community say that the cost to employers is likely to be much higher. (Oxford Economics, for example, estimated that the annualized employer costs could be as much as $874 million in administrative expenditures alone.)
The implications of the proposed rule are widespread, affecting employers across all industries and employees of all levels. In many employees’ minds, for instance, being considered “exempt” is seen as a rite of passage or reward. If these employees suddenly have to go back to punching a clock every day, they may think of it as a demotion of sorts. And what about all those thousands of hours employers will have to start tracking if the proposed rule is adopted? Employers who don’t have a time and attendance system that’s capable of effectively tracking regular versus overtime hours may need to seriously think about investing in one.
Below are a few strategies employers might take to comply with the proposed rule if it goes into effect.
While none of the strategies outlined above may sound appealing, they are, indeed, much better than the alternative consequences of being found to be out of compliance with the FLSA’s overtime regulations, which include potential lawsuits, fines, having to pay back-wages and even imprisonment.
Although the DOL doesn’t plan to publish the final rule until at least July, employers would be well advised to start thinking about what strategies they would be most likely to when the updated rules as quickly as possible after they go into effect, since they may not have a lot of time to do so after the release date. Experts are estimating that the window within which employers will be required to comply with any changes will likely be very short, possibly just 60 days.
This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.