The suggested changes to how the Department of Labor classifies “exempt” and “non-exempt” employees will impact small businesses in a big way, if adopted as proposed. According to Julie Young, a Columbus employment law attorney with Worley Law, LLC, the proposed amendments to the Fair Labor Standards Act were published in July 2015.
If adopted as proposed, the changes would, among other things, raise the minimum salary threshold for overtime pay from its current $23,600 annually to as high as $50,440. In other words, most employees making under $50,440 annually will be entitled to overtime pay and subject to the other FLSA regulations.
“It is estimated that 5 to 12 million currently exempt employees will become non-exempt,” says Young.
According to the Proposed Rule website, those affected by the suggested changes will be executive, administrative and professional employees (white collar staff) entitled to protections under the Fair Labor Standards Act (FLSA). That law applies to nearly all employers, says Young, so company owners need to be aware of it and take steps to prepare for it now.
Steps to take now Although the Labor Department did not specify when any amendments to the FLSA will become official, it’s always smart for employers to ensure they have properly classified their employees according to prevailing government rules. Since it is apparent that changes are on the horizon, Young advises small business owners to act now to be sure they are prepared.
She suggests employers take several steps, including:
Ensuring employees are properly classified as exempt or non-exempt according to Department of Labor regulations, not as the company owner believes the employee should be classified
Determine which of the employees currently classified as exempt earn less than $970 per week
Note that employees who do not meet that weekly salary minimum but meet the other tests of the changes will be automatically re-classified as non-exempt, even if they are exempt under current law
It is imperative to note that an exempt employee is one who is exempt from the Labor Department’s wage and hour laws. A non-exempt employee is one who does fall under its promulgations, so their employer must pay them accordingly.
In other words, says Young, “employers will have to determine how much it will cost them to raise the salary (of an employee that was formerly exempt), continue their current salaries but pay them overtime, or make them an hourly employee. A lot of people don’t realize they have the option to pay non-exempt employees on a salary basis, but still pay them overtime. It’s tricky, but can be done. The practical application is that once-exempt people become non-exempt, they will then be entitled to overtime,” says Young.
Chaton Turner, associate counsel for the University of Pittsburgh Medical Center (UMPC), agrees the first step employers should take now is a re-examination of how employees are classified. “They want to be sure they aren’t pushing the limits too much,” she says. Part of that dissection should include an inquiry into how much one employee manages or supervises others and whether they have the discretion to dock subordinates for tardiness, absenteeism and other infractions.
I sue for you According to Young, if the amendments to the FLSA are amended as proposed, an uptick in employment litigation will occur.
“Absolutely,” she says. “It is already estimated that 70-80% of all employers are violating this law to begin with.” The law changes will serve to create an entire new class of potential plaintiffs, she says.
Turner agrees that increased litigation will occur if the proposed amendments are adopted, as promulgated.
“Small employers more consistently push the limits regarding the classification of exempt versus non-exempt employees,” she says. That’s partially because a 40-hour work week simply isn’t enough time to thoroughly complete all the tasks that accompany many professional positions, she contends. In those 40 hours, employees have to complete their work, go to the bathroom, converse and train employees, perhaps help customers and even make bank deposits. That often means that employee is working more than a 40-hour week but, under current laws, they aren’t getting compensated for those additional hours.
“Jobs aren’t built for a 40-hour work week but laws are,” says Turner.
Tami Kamin Meyer is an Ohio attorney and writer. She tweets as @girlwithapen.