Exempt Status Soon to Get Extreme Makeover by DOL

The Department of Labor (DOL) has submitted a proposed rule change to the Fair Labor Standards Act (FLSA) which could significantly increase your labor costs.

It's anticipated that the final regulations will be released in late 2016, with a very short window for final implementation. Companies will be facing a new reality in terms of employee classifications, especially those deemed “exempt.” This includes executive, administrative, professional, outside sales, and computer employees.

DOL Increasing Base Compensation Rate
The job duties test still factors in exempt classification status, but the base wage rate has always been a big factor in the primary test. This base wage rate increased so long ago that it is out of step with today’s market. When the new rules become effective, the base compensation rate for:

  • Current base rate: $23,660 annually; $455 weekly; $11.375 hourly.
  • Proposed base rate: $50,440 annually; $970 weekly; $24.25 hourly.

This means your current exempt employees earning $40,000 annually will probably become non-exempt as of January 2016. Overtime rates will apply to these workers.

DOL Reviewing Duties Test
While the proposed regulations offer no specifics, the DOL is considering duties test changes. Specifically, the DOL may determine a threshold percentage of time an exempt employee can perform non-exempt activities and still remain exempt. A good benchmark is California, which already recognizes a loss of exempt status for managers performing non-exempt duties for 50% or more of their time.

How Can You Keep Costs Down?
Clearly, many employers will need to do some calculations and adjustments to keep overtime hours to a minimum. You should start now by identifying the jobs and employees to whom this change will apply. Here are some strategies to consider:

  • Adhere to a strict 40-hour work week.
  • Give compensatory time off, if possible, in any pay period that will exceed 40 hours.
  • For employees hovering near the base rate who regularly work overtime, raise their salaries to meet the standard.
  • Add part-time staff to handle some of the less complex duties.
  • Add temporary staff to handle peak times or seasons.
  • In some cases, it might make sense to reduce staff.
  • Redesign or realign job descriptions.

We Welcome Your Questions
If you have questions or need help in making adjustments to get through this transition, give us a call. Look to us to keep you apprised of the final decision when it becomes law and to help explore ways to comply with the changes.

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