…the DOL’s rumored changes to the FLSA act come to past. 1
As background, several months back the DOL signaled that they were looking to modernize OT pay rules, specifically emphasizing the need to update the salary threshold to reflect present day wages. Currently, employees must make a minimum salary of $23,660 ($455 per week) to qualify as salaried exempt employees. That salary threshold has only been changed once since 1975, however, and raising it to the Economic Policy Institute’s recommended $50,440 ($970 per week) would make many Supervisors / Line Managers across the U.S. that are currently classified as exempt eligible for overtime.
This change is not coming tomorrow (the latest estimate is sometime this spring), so employers will have time to prepare for any changes. But while the rollout has been delayed several times, changes are coming.
There’s also been speculation that California’s quantitative duties test may be applied to the FLSA executive exemption 2, which as a practical matter means that regardless of if the Department of Labor ultimately opts for a much lower salary threshold than that recommended by the EPI, many exempt employees will end up needing to be re-classified even if they comfortably meet the new salary threshold.
…As Michael V. Abcarian over at Texas Lawer notes, the employers that stand to be most impacted by this are those currently (i) classifying Line Managers whom engage in the same job duties as their direct reports as exempt and (ii) those firms employing a sizeable number of exempt employees underneath the EPI’s proposed salary threshold. Employers in this latter category are already likely to be pay followers with tighter margins, and so could find themselves needing to pass their rising human capital costs onto consumers simply to remain viable (or to identify dramatic new efficiencies in their supply chains).
With all that said, while I don’t know that I personally agree with ratcheting up the exemption pay threshold more than 45% (unless it’s staggered over a large enough period of time that it gives impacted employers time to make the no doubt required changes to their business models), with the U.S. economy becoming more and more service oriented this was a long-time coming; after all, there are a lot of people in the country right now that are working very high hours for very low pay. And whether looking at low-wage workers or the population as a whole, U.S. wages haven’t kept up with productivity for a very long time.
…Anyway, I just wanted to share my thoughts on this subject as it came up while talking to an HR colleague the other day. For those wondering how these changes might impact your client group, as a starting point check out sheet #17 A, “Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act.” found on the U.S. Department of Labor website here. And as always, please share your own thoughts in the comments section below.