Now that the 60-day public comment period on the proposed overtime rule has ended, it seems ever more likely that the final rule will look much like the proposed rule. The Department of Labor, in rejecting requests for an extension of the comment period, seems to be in a rush to promulgate the new rule, which would take effect in 2016.
Your business has have several options in order to remain in compliance:
- Don’t reclassify and raise salary. Adjust the salaries of your currently exempt workers to ensure they meet the new (and annually CPI-adjusted) minimum salary threshold of $50,440 (in 2016).
- Reclassify and pay overtime. Reclassify currently exempt employees as non-exempt who are paid below the threshold and start paying them overtime (time and a half).
- Reclassify and limit overtime. This option avoids overtime expenses, but could result in you losing productivity or having to hire more staff.
- Reclassify and cut wages. Reclassify and convert the employees to hourly workers, reduce their hourly wage rate, taking into account the same number of hours they have been working per week and the overtime you anticipate you’ll need them to work to maintain productivity. Of course, one potential consequence of slashing wages is driving away employees and deflating employee morale.
You should also review all of your current job descriptions and employee classifications. Work with managers to make sure that the job descriptions reflect duties your employees are actually performing. Also take this opportunity to verify that your independent contractors are not actually misclassified employees.
While it appears the primary duties test will not see significant changes, start thinking about whether some of the non-exempt duties that your otherwise exempt employees perform can be reassigned to other non-exempt employees. For example, if your exempt employees are performing menial or routine tasks that can be shifted to non-exempt employees, you can make room for your exempt employees to complete more tasks that pass muster under the primary duty test and get a little more bang for the higher buck you’ll have to pay to them.
Be very careful and use all best efforts to comply with the FLSA and its regulations. FLSA litigation – especially class action litigation – is on the rise and proves very costly. With the national attention this issue has been receiving, your employees are likely to pay more attention to their classification and wages. It would be wise to retain experienced employment counsel to help navigate you through these uncharted waters.