For those of you that don’t know the Fair Labor Standards Act has been taken into the “shop” for an overhaul. Last revised in 2004 many people (unions and the current administration primarily) think it is time to raise the salary level to be considered an exempt employee. It is time for HR to think about this.
The current level is $455 per week, or $23,660 per year, to be considered an exempt employee. Of course that is not sufficient to be considered exempt. You do have to meet the primary duties test too. But without hitting the required salary level you cannot be considered exempt from overtime regardless of what your actual job is.
In reality this is the equivalent of someone making about $11.75 per hour. Most businesses don’t have someone making that little amount of money in positions they consider to be exempt. The retail and fast food industries might be different.
The biggest change that unions, democrats and others are lobbying for is in that salary level that is the first hurdle to achieving exempt level status. According to Doug Hass of Franczek Radelet P.C., the lobbying has been pretty heavy. The proposed levels extend from $69,000 per year to a more modest $42,000 per year. A union aligned think tank (Economic Policy Institute) has proposed levels of around $51,000 on several occasions. A group of Democrat House of Representative members have proposed the level of $69,000 and a group of Democrat Senators has proposed a level of $56,680 per year. Of course on the other side the lobbying is as active with employer advocates and Republican opposition.
The big question is whether this will require legislation, which could be blocked, or is this just considered a rules change that can be instituted by the USDOL? The premise is that this will be an action that will be put in place without legislative input.
Regardless of what level is selected it is certainly going to be higher than $455 per week. It is going to have a major impact on your payroll. You will have to decide if you will maintain exemptions for all the employees who will fall below that salary level. My advice for all HR departments is to start looking at all your exempt employees. Assume that the new level will be at least the $42,000 per year or $808 per week. Determine who you will have to change if you want to keep them exempt. Ask if that salary increase is worth it? Look at how much overtime they work and thus how much you will have to be paying in overtime. Would a salary increase be cheaper than paying overtime?
I would then also make a plan for the salary level being changed to $1000 per week and then $1300 per week. Rather than scrambling to make changes have a plan in place so that when the announcement is made and the implementation date is announced you will be ready.
There is also the possibility that the primary duties test will be revised making it even more difficult to have exempt employees. We will have to wait and see on this one.
While I am all for people making more money I think this is a move in the wrong direction. Making it so more and more people have to be paid overtime in an age where we are moving to Results Only Work Environments (ROWE) and entrepreneurial work is in my opinion taking us in the wrong direction. At a time when we want people to have more flexibility and take more responsibility for themselves we are not moving to a system that requires more and more timekeeping. I think this goes counter to the type of world of work that people like Pink and Morgan are proposing.