If you run a business, there’s a decent chance your inbox has been/will be more crowded than usual this days with alerts about the new Department of Labor (DOL) Overtime/Minimum Wage Rule. And you may also get a slight feeling of déjà vu, because the same thing happened back in the Fall of 2016. That’s when a federal judge blocked the Obama Administration DOL from implementing a rule that would have significantly increased the minimum salary employers have to pay employees who are classified as exempt under the Fair Labor Standards Act (FLSA). Rather than fighting over that version of the rule in court, the DOL went back to the drawing board, and it’s been working on a revised regulation for the last couple years. On March 7, 2019 DOL unveiled its long-awaited proposal for the “Minimum Salary Rule 2.0.” The full DOL proposal exceeds 200 pages, but your friendly neighborhood @HoosierHRLawyer prefers bullet points where possible (actually, one of my mentors taught me to hate bullet points, so here’s some ordered lists instead):
What’s The New (Proposed) Rule Say?
Well, a lot. But here’s some highlights:
- If you’re an employer in any of the 50 U.S. States and have “white collar exempt” employees (administrative, executive, or professional), you’ll need to pay them at least $35,308 annually ($679 per week). This is an increase from the current rule, which requires only $23,660 annually ($455 per week). If you don’t pay your exempt workers the minimum salary (consistently each week), you can’t treat them as exempt, and they’re eligible for overtime.
- Certain nondiscretionary bonuses and incentive payments (including commissions) may satisfy up to 10% of the salary requirement.
- “Highly Compensated Employees” (a separate category from the white collar exemptions) must receive a salary of at least $147,414 per year (up from the current rule of $100,000).
- DOL plans to revisit (which most likely means “raise”) the salary levels every four years.
What Should Employers Do (And When)?
- Just so we’re all clear, the buzz you’re hearing now is because DOL has issued a PROPOSED new rule that they “expect” will go into effect in January of 2020 (a lot can happen between now and then). So you don’t need to (and shouldn’t) rush into anything.
- At the same time, you shouldn’t backburner this issue either. Employees may have questions and you want to know what you’re talking about when you respond. And salary increases or classification changes (from exempt to non-exempt) – like any changes to compensation policies or practices – take time to think through and implement.
- So, get started NOW. At a minimum, top management should be reviewing what positions currently are classified as exempt and flagging those being paid below the newly-proposed minimum.
- From there, you’ll need to determine whether you’re going to: (i) keep those employees as exempt (meaning pay them more, through whatever combination of base salary increase and bonus works best for your business and budget); OR (ii) reclassify them as non-exempt (meaning they get overtime for any hours worked over 40 in a workweek).
- Think through how you will communicate your changes – or even your lack of changes – with employees who are affected (and maybe even those that aren’t). Be prepared to explain, educate, and bust myths (because lots of people have lots of mistaken impressions about wage-and-hour laws).
- Don’t miss the bigger picture: Use the buzz surrounding this proposal as an opportunity to find and correct other lurking payroll-related problems. Keep in mind that paying exempt employees the proper minimum isn’t enough: their job duties have to fit at least one recognized legal exemption (and many – perhaps most – don’t), and you can’t reduce their salary except in a few narrow circumstances. By design, most positions are not exempt, and “we’ve always classified that position as exempt” or “our industry treats that position as exempt” will not satisfy DOL, courts, or plaintiff’s lawyers, and the longer it’s been since you’ve audited your payroll practices, the more likely you have FLSA misclassification problems. Fixing them can be delicate and time consuming, and the remaining months of 2019 may be your best opportunity to do just that.