Not As Easy As It Looks

Nora Akins

Last July the Department of Labor (DOL) submitted proposed changes Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees to the Federal Register.

The Fair Labor Standards Act (FLSA) protects workers by mandating minimum wage be paid and any time worked over 40 hours in a workweek be paid at 150 percent of the worker’s hourly rate.

If a worker falls into one of the exempt categories and meets the salary requirements, the employer is not required to pay overtime.

The proposed rule sets the standard salary level at the 40th percentile of weekly earnings. This would more than double the minimum weekly salary to $970 or $50,440 annually in 2016. The proposal includes changing the dollar amount annually to match the 40th percentile.

The DOL stated more than 4.6 million workers would be affected by the proposal. The public had until early September to review and comment. More than 250,000 comments were received.

Two bills (H.R. 4773 and S. 2707) would stop the proposed changes, requiring the DOL to conduct a complete economic analysis focused on small businesses, non-profit employers and others. The bills also include a one-year waiting period before the Final Rule. Both bills are currently in committee.

Despite the attempts to stop DOL’s proposed rule, employers have taken action to prepare for the likely changes.

Though there is speculation that the duties tests may change, employers first need to use the current definitions and compare them with the duties of their currently exempt positions.

Then determine who among the exempt employees will no longer meet the proposed salary level. If the average hours of the exempt employee are known, calculating an hourly rate is an option.

Many employees will cringe at the thought of punching a clock and being compensated according to time worked. There are a couple of ways to pay employees a salary who are no longer exempt from FLSA.

An employer may choose to pay a fixed salary based on an agreed upon number of hours or a fluctuating number of hours in a workweek.

In both cases, the non-exempt employee is still entitled to overtime. Overtime is calculated differently and is complicated compared to 150 percent of hourly rate for all hours worked over forty in a workweek.

The only way to incorporate overtime pay into the salary is to use the fluctuating workweek model which requires the employee to have significant irregular work hours due to the position’s requirements.

What all employers should do:

• Determine what positions may no longer qualify for exemptions from the FLSA.

• Use this time as an opportunity to analyze all exempt positions.

• Consider different pay practices for these positions.

• Communicate these potential changes as soon as decisions are made.

Nora T. Akins, of Strategic Management focuses on employer compliance and employee performance by providing management training and refining human resource systems; she can be reached at 873-1735 or nora@managepeopleright.com.

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