Speculation Looms

March 22, 2016  |   Posted by :   |   YPHR Blog

As many employers anxiously await the Department of  Labor’s final decision, there is lots of speculation around the proposed changes to the FLSA.

Crystal Ball

Almost 300,000 comments were received by the DOL in reaction to the proposed changes to the FLSA. This volume of responses that must legally be reviewed may delay the final rulings from mid-2016 as initially anticipated to late 2016 or even 2017.

This is huge news for the business community, which hasn’t been shy about expressing outrage over the proposed overtime rule changes the DOL issued in the summer of 2015.  The delay would mean employers have more time to prepare, even though they don’t know what the finalized rules will look like yet.  In addition to predictions that the rule may not go into place until 2017, there’s speculation that the minimum compensation level for exempt status may be $40,000 vs. the initially proposed $50,440.  These are huge differences! How can you prepare for something that is still unknown?

A few ideas of how employers can prepare:

  1. Review your current positions’ exemption status, ensure that jobs are appropriately classified as exempt or nonexempt under the FLSA.
  2. Identify which exempt positions have incumbents with compensation below $50,440.
  3. Determine the cost impact to move these employees up to the proposed minimum of $50,440.

Regardless of when the final rule is published, it is thought that there will be a 60 day deadline to implement. Therefore, employers need to consider implementation scenarios and think through the issues to be ready to move quickly once final rulings are announced.

Options regarding implementation when the regulations are finalized:

  1. Increase all exempt employees being paid under $50,440 to the new minimum when the regulations take effect.
  2. Change exempt employees with compensation below the new minimum to nonexempt status and manage overtime.

It’s still anyone’s guess when the final overtime rule will be released. The later in the year it is published, though, the greater the chances that the rule will be overturned by the next congress and president or the courts.  The fact that we are approaching a presidential election creates even more controversy around the new regulations and the timing of implementation.

Overall Impact: 

According to the Labor Department, the overtime rule’s new minimum salary threshold increase (from $455 per week/$23,660 per year to $970 per week/$50,440 per year) for exempt workers and annual increases in the minimum salary threshold will result in 10 million employees being reclassified from exempt to nonexempt over the next 10 years. In 2016 alone, 4.6 million workers face reclassification.

“Many are concerned the department has underestimated the impact of the rule and that far more employees will be affected,” the Society for Human Resource Management and other associations stated in a Feb. 11, 2016, letter to Congress. “Public-sector employees, who often are paid less than their private-sector counterparts and tend to receive more of their compensation in benefits, which are not counted in the salary threshold calculation, will be particularly impacted.”

Legal Statements / Quotes:

Paul DeCamp, an attorney with Jackson Lewis in the firm’s Washington, D.C., office and a former administrator of the Wage and Hour Division, remarked, “The odds of litigation over the rule are pretty close to 100 percent. It is very difficult to envision any realistic scenario in which this regulation does not end up in litigation.”

Tammy McCutchen, an attorney with Littler in Washington, D.C., and a former administrator of the Wage and Hour Division, said that the “best chance for a legal challenge is if DOL includes annual automatic increases for salary level or makes changes to the duties test.”  DeCamp added, “If the department waits too long, it raises the risk that one cranky judge in a forum of a plaintiff’s choosing could enjoin the regulations long enough to run out the clock on this administration, which becomes either a game changer or a nonevent, depending on who replaces President Obama.”

For questions or assistance with compensation, please contact Amy Petrus at Your Partner In HR.



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