In July 2015, the Department of Labor (“DOL”) proposed significant changes to the Executive, Administrative, Professional (“EAP”) or “white-collar” exemption under the Fair Labor Standards Act (“FLSA”). The FLSA makes it illegal for an employer to pay under the minimum wage and forces employers to pay overtime to those employees who are (properly) classified as “non-exempt.” The modifications, if they are approved, will increase the salary threshold for those white-collar workers who may now be exempt from overtime laws.
….So, what does this mean for employers??
First, it is important for employers to understand the changes proposed, should they go into effect. Here is an example of how the new rules may affect you, a business owner: Company, Inc. (which is an “employer” within the guidelines of the FLSA) employs an office manager named Robert. Under the current rules, such a position may be exempt under the Administrative exemption (you can read more about that here). In order to be exempt, Robert would have to earn at least $455/week, perform primarily non-manual labor which is directly related to the operations of the employer, and have independent discretion with regard to significant matters. Well, let’s say that Company, Inc. has an employment law attorney on retainer and knows that Robert is properly exempt from overtime. So, Robert works about 60 hours a week and gets paid $500/week, regardless of the hours he works.
If the proposed changes are made, the required salary Robert would have to make could be as high as $970/week. This is a massive increase to Robert’s pay. This is also a massive increase to Company, Inc.’s payroll expenditures. So, if Company, Inc. wishes to avoid paying Robert overtime, they will need to increase his salary from $26,000/year to $50,440.
It is important for employers to understand the “why” as well: the DOL pointed out that the current threshold of $455/week is actually below the poverty line for a family of four. What’s more, the last time any modifications to this part of the FLSA were made was more than 10 years ago, in 2004. Since then, there have been several increases to the minimum wage, yet no changes to this salary threshold. So, it makes sense.
However, if you are a business owner who has questions about whether or not you have to change the classification of some of your employees, need to change the the way some of your employees are paid, or may have to start using a time-keeping system given this new proposed rule, please contact a knowledgeable and qualified employment law attorney within your state.
