The Department of Labor (DOL) has proposed major changes to the Fair Labor Standards Act (FLSA) overtime rules.  If the changes are finalized, , the rules will raise the minimum salary for most overtime-exempt employees earning from $684 per week ($35,568 per year) to $1,059 per week ($55,068 per year) or higher.  Additionally, the salary threshold for highly compensated employees would go from $107,432 to $143,988 annually.  There would also be an automatic increase every three years to all salary thresholds.  There are differing opinions as to when this ruling will take effect, but likely during the late 2023 or early 2024 timeframe.  Employers will likely have a grace period of 30-90 days to comply.  There is still a chance that this ruling will be challenged in the courts, similar to prior proposals.  However, it is always a good idea to make sure that you are prepared for any changes to the FLSA thresholds.

Here are some suggestions to think about if any of your employees are currently classified as exempt under the FLSA and are earning less than the proposed minimum amount to be classified as exempt.  Think about these areas:

• Should you increase the weekly salary above the new threshold in order to maintain the exempt classification? You should also assure that your classification of your jobs is correct, meaning that  the duties tests for determining exempt status should be reviewed to ensure that your current jobs are classified correctly.
• Should you reclassify an employee as non-exempt “salaried” employees and pay them overtime for any overtime hours worked above 40 hours in a given work week? You would continue to pay them a set salary amount and only change their weekly pay salary when overtime is worked. For example:  Employee works 43 hours in a work week.  You would pay them their regular salary for the 40 hours and then add the 3 hours of time to the paycheck at 1.5 times the hourly rate.
• Should you reclassify them as non-exempt, but convert them to hourly employees and pay them overtime for all hours worked above 40 hours in any given work week.  If your work week is less than 40 hours per week, then when you classify your employees as hourly, you would pay them at straight time for all hours worked between your standard number of hours and 40 hours.  For example, you work a 35-work week.  An employee is classified as non-exempt, hourly and works 38 hours in a given work week.  You would pay them the 38 hours at straight time for that week.

It is a good idea to plan backwards from the date you will want to be in compliance with this ruling.  You would need to decide what training you will provide to your employees and managers so they understand the new rulings, and the changes from exempt to non-exempt classifications and the impact that it will have on employee’s compensation.  Remember, some employees like the prestige of being classified as “exempt”.  Determine how you will communicate these changes to your employees and whether changes to timekeeping practices are necessary so that overtime is paid appropriately.  

There are some states where overtime salary thresholds are higher than the current federal level.  Those states are California, Colorado, Maine, New York and Washington.  

KardasLarson will be watching how this overtime change unfolds over the next few months.  With a professional team of Human Resource experts, we are here to help you determine the best course of action for your organization, review the current classifications of your positions to ensure they are classified correctly, and show the impact that the new regulation will have on your current workforce related to salary compression.