On May 18, the U.S. Department of Labor issued the long-awaited new rules on status for executive, administrative and professional exemption from overtime. Under the final regulations, effective on Dec. 1, the new minimum salary for the executive, administrative and professional exemptions will increase from $455 per week, or $23,660 per year, to $913 per week, or $47,476 per year. This means that employees who do not receive the new minimum salary level when the final regulations become effective will not qualify for any of these three exemptions, regardless of their job duties, and will be classified as nonexempt, and thus entitled to be paid overtime when they work more than 40 hours a week.
The Obama administration estimates that the new salary threshold will make 4.2 million more employees eligible for overtime compensation if their salaries are not increased to meet the new minimum. The bottom line for employers is that it still increases the threshold by more than 100 percent in a single stroke, and it will be difficult to implement. While some businesses may be able to adjust to the changes by raising prices, other businesses — particularly many small businesses, retailers, non-profits and local governmental entities — will be placed in a particularly difficult position.
The new rules also include provisions that will result in the minimum salary threshold for the executive, administrative and professional exemptions being indexed every three years, with the first change resulting from indexing to occur on Jan. 1, 2020. The new salary threshold will be indexed to the 40th percentile of all salaried workers in whatever is the lowest-wage census region.
Another change allows employers for the first time to use nondiscretionary bonuses and other incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level, so long as those payments are made on a quarterly or more frequent basis.
Another change was made with regard to the exemption for highly compensated employees. The minimum total compensation requirement for this exemption will move from the current $100,000 level to $134,004. This salary level will also be subject to indexing every three years.
The good news for employers is that they have until Dec. 1 to consider how to handle the new changes in their workforces.
For now, employers should evaluate which job classification will likely be impacted by the changes. They may also want to consider:
• whether positions that are being paid below $47,467 will receive a salary increase, or will be reclassified as nonexempt, subject to overtime
• how those positions that will be reclassified to nonexempt are going to be paid: hourly, salaried plus overtime, day rates plus overtime, etc.
• whether nonexempt employees will be prohibited from working overtime in order to avoid that expense
• whether new pay grades or new job titles will need to be created
• morale issues that will be created by moving employees from exempt to nonexempt status
• how the changes might impact benefit programs
Employers should also devise a communication plan for affected employees and train them (and their managers) on timekeeping policies that will now apply to nonexempt employees who didn’t have to keep track of time worked when they were exempt.
Greg Guidry, a shareholder in the Lafayette office of Ogletree Deakins, represents employers on labor and employment matters.