In July of 2015 the DOL released the proposed changes to the Fair Labor Standards Act (FSLA) overtime exemption rules. The document is approximately 295 pages long. We have summarized it here. If you would like to read it in its entirety, click here.
SUMMARY OF CHANGES
Current salary standards to qualify for overtime for a salaried worker are they must make at least $23,660 annually ($455 per week). The revised rule would increase to $50,440 annually ($970 per week). (Estimated to be the 40th percentile)
Higher Paid Employee Threshold
A more highly paid employee threshold will also increase. The more highly compensated employee will rise from $100,000 annually to $122,148. (Estimated to be 90th percentile)
The DOL is recommending escalating factors to be tied to the 40th and 90th percentiles and automatically increase, based on the Consumer Price index. This automatic increase will be a first.
Bonus payments are not factored in to a person’s salary in the new proposal. This may change based on the comments the DOL receives. In the current system bonuses are only calculated for a highly compensated employee. The entire bonus scenario is still being considered; the DOL is requesting broader inclusion calculations.
Duties and Definitions
The new proposal does not contain any changes to duties and their definitions. The DOL is requesting comments on this.
Timing and Effect Date
At this time, there is not a confirmed time for the proposal to take effect. Speculation is that this will not begin until sometime in 2016. The Federal Register has not been published, and once that occurs there must be a comment period. HRFix will continue to monitor this and keep our clients and prospects informed.
Cost to Employers
Depending on the how the salary threshold escalation is achieved, the DOL estimates that the costs to employers will range from $239.6M – $255.3M annually.
In addition to direct costs, the DOL says the rules would transfer between $1.18 billion and $1.27 billion out of employers’ coffers into employees’ paychecks annually — again assuming employers do nothing to adjust to the rules. One global analytics firm, Oxford Economics, suggests that the “transfer of funds will not take place.” Their researchers are predicting that businesses will implement “significant adjustments in the structure of their workplaces to compensate for the billions of dollars of added wages the new regulations would impose.” They also suggest that businesses might adjust compensation to avoid the additional labor costs, with such options as:
- Reduce the work week to under 40 hours, thereby avoiding overtime costs
- Reducing employee bonuses and benefits, while increasing base salaries above the new threshold
- Lower hourly pay rates
As the process continues, you can rely on HRFix to keep informed and pass the updates along to you. If you have additional questions, please contact us.