Last September, the Department of Labor (DOL) issued a proposed rule increasing the Fair Labor Standards Act’s minimum weekly salary rate for exempt employees to $970 a week, a great increase from the current $455 per week minimum. Moreover, DOL wants the new salary level indexed for annual increases in the future.
The effect of this change would mean exempt employees currently earning an annual salary of $23,660 or more would lose exempt status unless they are paid an annual salary of at least $50,440. Otherwise, the formerly exempt employees would become entitled to overtime pay if they work more than 40 hours in a week. DOL expected the initial change would entitle more than 4.6 million currently exempt employees to overtime in the future, potentially costing employers nearly $1.5 billion dollars in the first year.
After reviewing hundreds of thousands of comments, DOL submitted a final version of the rule to the White House Office of Management and Budget in March. It is rumored that the final rule sets the initial salary minimum at a slightly lower $904 per week, equivalent to a $47,000 annual salary, though employers won’t learn for sure until the final rule is issued. For timing reasons under the Congressional Review Act, the new rule may very likely be issued on or before May 16, 2016. If that occurs, then any attempt by Congress to block the rule could be vetoed by President Obama before he leaves office. As implementing the rule has been a high priority of the Obama administration, it is a good bet the President won’t want to leave its fate in the hands of the next administration.
Whether issued by May 16 or later, change is coming and employers must prepare. When the rule is issued, employers will likely have only 60 days to come into compliance. Many employers have been aware of and planning for this change for months. Those that have not must move quickly to determine how they will handle the change and avoid the potential for massive liability for failure to comply. To avoid laying off employees they can no longer afford to retain, an array of employer options could include raising salaries to maintain employees’ exempt status, converting affected exempt employees to hourly or salaried non-exempt status, limiting permissible overtime work, or cutting base salaries to offset anticipated overtime costs. Each option has its complications and risks. For assistance in planning for this significant change, contact a member of the Faegre Baker Daniels employment law group.