Written by Mark Szypko, CCP, GRP
August 26, 2016
Since its introduction in 1938, the Fair Labor Standards Act, or FLSA, has had a significant impact on the way we work. This landmark legislation established many of the things we take for granted today – a national minimum wage, the 40-hour work week, guaranteed overtime pay for certain jobs and child labor prohibition. And as the needs of the workforce continue to change, the FLSA has evolved in turn, amending regulations to protect today’s workers and impacting the way organizations manage, schedule, deploy and compensate employees.
One of the biggest perennial challenges centers on determining which employees are exempt or non-exempt from the provisions of the FLSA. It is important to understand that all jobs in your organization are non-exempt unless you, the employer, prove otherwise. In order to secure an exemption for a position, they must pass 3 tests:
However, proposed changes by the Department of Labor (DOL) to the FLSA will set the minimum salary level at the 40th percentile of weekly wages for all full-time salaried employees in the lowest income census region in the US. This more than double the minimum salary threshold to qualify as non-exempt to $47,476 per year ($913 per week). This also means anyone making less than $47,476 per year would be non-exempt and eligible for overtime compensation.
The minimum threshold for the FLSA’s Highly Compensated Employee (HCE) exemption has also changed. As it stands today, employees performing office or non-manual work who earn $100,000 per year or more are considered exempt. The new regulations would raise this minimum to the 90th percentile (or $134,004) of weekly wages for all full-time salaried employees to be considered an HCE.
Needless to say, these impending changes will have a significant impact on how companies compensate their employees. For instance, they may seek to increase the salaries of select positions to the new minimum of $47,476 to make them exempt, or accept the loss of the exemption for many of their employees and be prepared to increase overtime payments. They’ll also have to determine what to do in a situation where individuals working the same job have different exemption status (based on their pay levels).
With these changes going into effect December 1, 2016, employers are running out of time to figure out the best course of action. So what can you do? Consider the following strategies to comply with the impending changes to the FLSA:
Given the updates to the FLSA, it is important that businesses don’t underestimate the depth of these changes. Companies should fully understand the impact to the business and develop a plan to update policies and practices accordingly. Committing the time and effort to understand these changes will help to ensure success in this new FLSA environment.
You can start with CompAnalyst's new feature, Interactive Insights, which can easily calculate the financial impact to your company when you move effected employees to the new thresholds. Click here to learn more about the 2016 summer release or request a demo!
Download our white paper to further understand how organizations across the country are using market data, internal analytics, and strategic communication to establish an equitable pay structure.