At long last, the Department of Labor (DOL) has issued a new proposed rule updating the salary level for white-collar exemptions to overtime pay, as outlined in the Fair Labor Standards Act (FLSA).
The new federal exemption threshold for which salary exempt Executive, Administrative, and Professional workers may qualify for overtime has been raised to $35,308 ($679 per week). This is an increase from the current level of $23,660 ($455 per week), but less than the Obama rule, blocked in 2016, which was $47,476 ($913 per week).
Currently, Hawaii employers must meet the state minimum salary threshold of $24,000 per year, which is just a tad higher than the federal requirements. Once the new rule is effective, the higher salary threshold will take precedence.
The DOL expects that the new overtime pay rule will be effective January 2020.
Additional provisions in the new law include:
- No change to the duties requirements.
- Nondiscretionary bonuses and incentive payments (including commissions) may be used to satisfy up to 10% of the new salary level requirement.
- The new salary level for the Highly Compensated Exemption (HCE) will be $147,414, which is higher than the Obama rule. This is a surprise. The current level is $100K, and the Obama rule was $134,004.
- There are no automatic increases, but the DOL proposes that the salary level will be revisited every four years.
What does the new white collar exemption mean for employers?
If an employee is classified as salary exempt and making under $35,308 a year, employers would be required to re-classify that employee as non-exempt and compensate that employee at time-and-a-half overtime pay for any hours worked in excess of 40 hours a week. (Learn more about exemptions on the Fair Labor Standards Act Advisor website.)
Penalties and sanctions for non-compliance with the FLSA are severe and aren’t a calculated risk worth taking. In addition to the back payment of lost wages to all affected employees, willful violators may be prosecuted criminally and fined up to $10,000 (Source). Employers with repeated violations may be subject to fines of $1,100 per incident. A second conviction of violating the FLSA can even result in imprisonment.
“I would strongly encourage employers to begin analyzing their salary exempt workforce now in consideration of the new threshold,” advises HR Specialist Dianne Boasso.
“This will allow time to get a plan in place and communicate any changes to the affected employees which will provide for a smoother transition.”
Options for complying with the increased overtime threshold
If your business has a significant number of employees affected by the overtime rule change, there are no easy solutions. Some employers may have already instituted wide-reaching operational changes in efforts to accommodate the new rules back in 2016.
This may have included increasing salaries, shifting workers to hourly status, or even laying-off employees to meet cost constraints.
There are some options worth considering as you evaluate how to remain compliant with the new DOL overtime rules.
Raise workers’ salaries above the new threshold
If you have employees consistently working beyond 40 hours a week and these employees are already being compensated at or near the salary threshold, it might be worth considering raising salaries above the $35,308 threshold. However, remember that employees’ duties must still satisfy the duties test as required by the FLSA. In the event of a DOL audit, a current job description will assist in providing documentation to support the exemption.
If it is not within your budget to increase salaries, re-classifying your salary exempt positions to non-exempt will be necessary.
Pay overtime as necessary
If your employees typically work 40 hour work weeks throughout the year but are only occasionally or seasonally required to work overtime, it might be advantageous to reclassify your employee as non-exempt and budget for overtime as opposed to simply raising yearly salaries above the threshold.
Limit workers’ hours to 40 hours a week
If possible, redistributing workload to ensure that non-exempt employees remain within a 40 hour work week might be the most cost-effective way of handling the new regulations.
Hire temporary workers
In limiting your non-exempt employees to a 40 hour work week you may find the need for the occasional temporary worker to manage workflow. Hiring temporary workers to manage workloads as a stopgap has the potential to be more cost-effective than raising salaries across the board or paying overtime.
Prepare for communication to affected employees
There are employees who tie professional esteem to being salary exempt. If you determine paying on an hourly non-exempt basis is more cost-effective for your business, please be sensitive to the affected employees when communicating the changes. Even if there is no change to their income or duties, they may perceive their now non-exempt position to have less professional status.
In Hawaii’s particularly tight labor market, effectively disseminating information to your workforce is important to ensure your employees don’t feel slighted as your business moves to ensure compliance with new regulations.
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