How might the DOL's proposed increase in the minimum salary required to qualify for certain overtime exemptions impact your business?
On March 7, 2019, the Department of Labor proposed an increase in the minimum salary required to qualify for certain overtime exemptions. We'll explain the specifics of the proposal and how to evaluate the potential impact to your business, as well as what you need to do if the proposed rule change goes into effect in 60 days.
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Kara Murray is the Vice President of Sales Operations for ADP's Small Business Client Channel. Kara has been with ADP for 9 years and has been in various sales and sales leadership positions while she has been with ADP. One of her primary goals is to educate our clients on the ever-changing HR landscape and how ADP can help them overcome everyday workplace challenges.
Kristin LaRosa is Senior Counsel for ADP's Small Business Services division. Prior to joining ADP, Kristin worked as an employment lawyer where she represented employers in litigation and provided legal advice and counseling on day-to-day employment and HR matters.
Meryl Gutterman is Counsel for ADP's Small Business Services division. Prior to joining ADP, Meryl worked as an attorney in private practice representing small businesses in employment-related matters.
Kara Murray: On March 7th the Department of Labor released a proposed rule to increase the minimum salary required to qualify for certain overtime exemptions. It's estimated that the changes would make as many as 1.3 million workers newly eligible for overtime, unless employees increase their salaries. Now is the time to evaluate the potential impact on your business. I'm Kara Murray, and this is HR[preneur], a podcast by ADP.
We know you work incredibly hard to support your employees and make your business a success. More than likely, this means you wear lots of hats, and one of those might be HR professional. We're here to help you get the insight you need in order to tackle day-to-day workplace issues. This week I'm joined by Kristin LaRosa and Meryl Gutterman. Both work as counsel for ADP's small business services.
I also want to thank the ADP client appreciation program for sponsoring today's episode. You can earn free payroll be referring ADP, and if you want to learn more, you can reach out to your local sales representative. Before we get into details of the proposed rule, Kristin, could you talk briefly about wage and hour laws to provide a little context to our discussion today?
Kristin LaRosa: Sure, Kara. Let's starts with the Fair Labor Standards Act, or FLSA, which requires essentially all employers to pay most employees at least the federal minimum wage for each hour worked, as well as overtime paid for all hours worked over 40 in a work week. It also allows for exemptions from these overtime and minimum wage requirements for employees who meet specific salary and duties tests.
Kara: Great. Thanks, Kristin. So what did the DOL propose changing?
Kristin: They proposed a few significant changes, but before we get into those, I just want to make clear that this is simply a proposed role. The public is going to have an opportunity now to comment, and there will be changes to the proposal before it becomes final. With that being said, the biggest change the DOL proposed is and increase in the minimum salary requirements for the administrative, professional, and executive exemptions, increasing the current minimum from $450 per week to $679 per week.
Meryl Gutterman: Right, and in addition to that, employers would be able to use non-discretionary bonuses, incentive payments, and commissions to satisfy up to ten percent of this requirement, as long as these forms of compensation are paid at least annually. When we talk about non-discretionary bonuses, we're talking about bonuses that are announced or promised in advance, such as a bonus for meeting certain production goals.
Kristin: Right. Another thing included in the proposed role is an increase to the total annual compensation requirement for the highly compensated employee exemption to $147,414 per year.
Meryl: Right, and for this highly compensated employee exemption, employers are already allowed to include commissions, non-discretionary bonuses, and other incentives towards meeting the total annual compensation requirement. Currently there's no cap, and this wouldn't change under the proposal.
Kristin: Right, and one thing to keep in mind is many states don't permit employers to use the highly compensated employee exemption to qualify for an exemption from overtime under state roles.
Kara: So when would this rule become effective?
Meryl: The changes won't take effect until after the DOL publishes a final rule, and before a final rule can be published, the proposed rule is subject to a 60-day public comment period.
Kristin: Then after that 60-day period ends, the DOL will review the comments to determine whether changes should be made before publishing a final role. So that process can be lengthy and potentially takes several months of review.
Kara: With all that said, what steps should employers consider taking now?
Meryl: Well, right now employers should review all of their exempt classifications to ensure that their employees still qualify under the existing rules. Employers will also want to identify any exempt employees who currently earn less than $679 per week, which is the proposed salary threshold.
Kara: Okay. So if the rule becomes final and an employer has exempt employees that make less than the $679 per week, what should the employer do?
Meryl: Well, the employer should either reclassify the employees as nonexempt and then pay them an hourly wage and any overtime when it's due, or the employer could raise the employee's salary to meet the new salary requirement that's needed to qualify for the exemption.
Kristin: Yeah, and I would just add here that you also want to consider the potential costs of each option. So if you have an employee's salary that's well below the new proposed minimum and they rarely work overtime, it may be more cost effective to reclassify them as nonexempt, but if their salary is closer to the new proposed minimum or they frequently work overtime, you may want to consider raising their salary to keep that exemption.
Kara: All right. Do you have any additional advice for employers?
Kristin: I would just add here that some states have their own salary requirements that already exceed this proposal. Some other states may decide to increase their salary thresholds based on this new federal proposal. So I would say where state and federal rules conflict, you want to make sure you're in compliance with the one that's most generous to the employee.
Meryl: Absolutely, and also watch for updates. We'll be monitoring the status of the proposed rule closely and updating our FLSA guide as developments unfold.
Kara: Thank you so much, Kristin and Meryl. We'll include a link to the FLSA guide in our show notes. We want to thank you all for listening to HR[preneur]. Again, I'm Kara Murray, and for all the latest episodes, subscribe on Apple Podcast, Google Play, or wherever you listen to podcasts.
HR[preneur], a podcast by ADP's Small Business Services, is designed to help you get the insight you need in order to tackle day-to-day workplace issues. In each episode, you'll hear from industry experts about the latest in HR, such as the #MeToo movement, evolving marijuana laws, and more. Each episode will be between 10 and 15 minutes long, but full of practical advice. Find us on Apple® Podcasts or visit the HR[preneur] podcast page on Podbean.
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