On March 13, 2015, President Obama issued a Presidential Memorandum directing the Department of Labor to update its regulations regarding which workers are protected by the Fair Labor Standards Act’s minimum wage and overtime standards. Specifically, the president asked the DOL to address the so-called “white collar” exemption, which allows employers to avoid paying overtime to certain salaried workers, including those classified as executive, administrative, professional, outside sales and computer employees. Last updated in 2004, the current rule states that all exempt employees’ salaries must be no less than $455 per week ($23,500 annual salary for a full-time employee.)
The Proposed Rule Change
In response to the President’s request, in July 2015 the DOL issued a new proposal that nearly doubles the salary threshold for exempt employees to $970 per week or $50,400 per year. The proposal also increases the minimum salary level for “highly compensated employees” from $100,000 to $120,000 per year. Industry leaders anticipate that the ruling may affect up to 5 million white collar workers in the United States directly and increase protections for about 10 million more.
The Labor Department sought input about the anticipated impact of the proposed ruling from businesses and nonprofits during July through September 2015. The Department is reviewing nearly 300,000 responses before amending or finalizing the ruling sometime this year.
Potential Impact of the Ruling on Employer Liability
If the Department of Labor finalizes its proposal in its current form, employer liability may be impacted significantly in cases where a business fails to pay overtime ( at a rate of 1.5 times the employee’s hourly pay rate) to salaried employees who:
- Earn less that the salary threshold of $50,400
- Work more than 40 hours per week.
Some specific job categories that could be affected by the ruling include:
- Assistant managers in fast food and convenience stores
- Administrative assistants
Employees who are wrongly denied overtime pay may file a private civil lawsuit under the FLSA and receive back pay plus an equal amount of liquidated damages plus attorney’s fees and court costs. In rare cases where the FSLA does not apply (for example, a small business, local business) or in areas where state employment laws are more stringent than the FLSA, the employee may file suit under applicable state employment laws.
How You Can Protect Your Business from More Employer Liability
Although no one knows what the final ruling from the DOL will contain, a lower salary threshold for exempt employees is virtually assured, and it will most likely go into effect in 2016. Therefore, it’s critically important for your business that you start planning for the future today. According to the Society for Human Resources, there are a few steps you can take right now:
- Determine whether to increase the salaries of currently exempt employees who are close to the salary threshold –or—
- Reclassify all employees whose current salary is below the new minimum as nonexempt.
- Examine current pay structure and typical hours worked for employees who may be reclassified
- Determine how to structure nonexempt pay rates for reclassified employees
- Evaluate current roles, hours and job duties of current and future employees
Additionally, it’s essential that you contact an experienced insurance agent to discuss expanding your current general liability coverage to include employment practices liability insurance, which can help defray the cost of any wage-and-hour legal disputes. Our experts are here to answer your questions Monday through Friday from 9 a.m. to 6 p.m. Call us at 516-292-3780 to schedule an appointment, or request a free consultation on business insurance now.