By Bill Krizner, The Krizner Group
The United States Department of Labor Wage and Hour Division has announced a dramatic increase to the minimum salary threshold for the executive, administrative, and professional exemptions. Experts believe that the increase to nine hundred seventy dollars ($970) per week or fifty thousand four hundred forty dollars ($50,440) annually will impact forty seven percent (47%) of those positions currently treated as exempt. The Department is also proposing to increase the highly compensated exemption from one hundred thousand dollars ($100,000) to one hundred and twenty two thousand one hundred and forty eight dollars ($122,148) annually. The Department intends to introduce mechanisms that will automatically update these salary thresholds on an annual basis by either using a fixed percentile of wages or looking to the Consumer Price Index to make such adjustments.
While the salary threshold increase is certainly the news of the day, the Department clearly indicated within its Notice that it is looking at potentially modifying the job duties requirements also required to make an employee exempt from overtime under the executive, administrative, and professional categories. In particular, the Department seems determined to more closely consider the time that exempt individuals spend in performing non-exempt work. Our Firm believes that this is particularly concerning for midlevel management positions that are currently treated as executively exempt under the Act. The Department also briefly indicates that is it more closely considering computer professional positions and the potential of updating the requisite job duties to better allow the possibility of exempt status.
Our Firm has reviewed the Department’s just issued two hundred and ninety five (295) page Notice of Proposed Rulemaking (NPRM) and offers the following immediate advice:
Do Not Overreact. While we were shocked by the news that the salary threshold will likely more than double with this week’s announcement, it is premature to make immediate decisions. The NPRM has not yet been published in the Federal Register, meaning that the comment period regarding the proposed changes has not yet opened. We believe that the new rules will not go into effect until the beginning of 2016 and it remains possible, although highly unlikely, that the threshold could be lessened during that period of time. The final rules should provide greater clarity on which more informed business decisions can be made.
Identify. It is prudent, however, to identify any and all of your current exempt positions whose salaries fall short of the announced $50,440 annual minimum. We do not advise alerting such individuals of the announcement yet; however, given the publicity associated with this topic, you can expect that they will soon be informed.
Estimate. Consider the cost of increasing each impacted exempt position to the newly proposed minimum salary threshold. Then consider the cost of instead simply converting such positions to non-exempt status and adding the resulting overtime pay based upon the average number of hours over forty that they work weekly. This exercise will allow an immediate cursory assessment of the pending financial consequence of the announcement.
Contemplate. The NPRM does not appear to prohibit employers from reducing the compensation of currently exempt positions, converting the positions to non-exempt status, and then utilizing the newly required overtime hours worked and corresponding compensation to offset the loss in existing pay. This will likely be a strategy considered by many employers but will present its own set of challenges, including both correctly estimating overtime hours and managing the very real impact to employee morale.
Await. We are working diligently to gather as much information as possible as it is made available and will continue conveying it to our valued clients with corresponding practical advice. Our preventative retainer concept will best ensure that we work together to overcome the challenges that this newly proposed rule change will have on your culture and your bottom-line.
Ask. As always, we encourage our clients to electronically mail message us with any questions related to this or any other employment law or human resource topic as they arise. Proactive management of such matters can greatly reduce the risk of ultimate financial exposure.
The Krizner Group is the leading employment law audit practice in Florida and provides counseling, training and audit services for dozens of medical practices in the local Big Bend area. Mr. Krizner can be reached at email@example.com for assistance.