From Exempt to Hourly: Prepare for New DOL Rules

Millions of workers and their employers will be deeply impacted by new Department of Labor (DOL) regulations. This summer, the DOL will announce changes to the Fair Labor Standards Act (FLSA) classification parameters for exempt vs. hourly workers that are expected to take effect in 2016. The regulations will target white collar exemptions for executive, administrative, and professional workers.  These changes center on the tests used to determine exempt status: annual salary thresholds and job duties tests.

Salary Threshold

The salary threshold establishes the minimum salary for exempt employees. Since 2004, the annual salary threshold has been $23,660. The new regulations will undoubtedly increase this amount. Predictions for the new amount fall between $40,000 and $50,000, keeping in mind that the same rule has to apply to small markets, as well as big cities where salaries are higher.

Job Duties Test

This is where it gets harder for small enterprises or subdivisions of larger enterprises, especially in retail and hospitality. Currently, a worker’s classification as either exempt or hourly depends not just on salary, but also on the general character of the job as a whole. According to Tammy McCutchen, former administrator of the DOL's Wage and Hour Division, this is true everywhere except California.  California recently started requiring that “more than 50% of an employee’s time must be spent on overtime-exempt duties each week for the position to be classifiable as exempt.” The impending changes to DOL regulations will extend this requirement to all states.

The impact of this job duties change will mean businesses must further designate who performs what duties in order to keep the balance of duties above 50%.  Exempt employees who currently pitch in and help with tasks such as copying, cash register management, assembly line, and so on, would have to insure this hourly activity remains less than 50% of their work time.

In California, litigation has soared, and employers face pressure to settle and reclassify. McCutchen said, “many employers will find it easier to just go non-exempt and pay overtime to nearly their entire workforce.”

Advanced Preparations

Start preparing now by reviewing your employee classifications and job descriptions, and determine how your pay systems will be affected if many of your exempt employees become hourly. You can count on us for timely updates when the final rules are announced, meanwhile, let us know if we can help.

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