Start Preparing Now for Wage and Hour Changes on the Horizon

November 17, 2015

By: Katherine R. Schafer

As we have previously reported on this blog, and as most of you are well aware, the U.S. Department of Labor has published its highly-anticipated proposed revisions to the “white collar” exemptions under the Fair Labor Standards Act (“FLSA”).  The proposed rule would increase the required salary level for exempt employees to a projected $50,440 per year in 2016 and establish a procedure for automatically updating the minimum salary levels on an annual basis going forward without further rulemaking.  The proposed rule also significantly increases the salary threshold to qualify for the “highly compensated employee” exemption to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers ($122,148 annually).  According to the USDOL, nearly 5 million employees currently classified as exempt will immediately become eligible for overtime pay should the proposed rule be adopted as the final rule. Current best estimates are that we could see the final rule published next year.  In the meantime, there are steps employers can take now to start preparing for compliance, beginning with identifying those current exempt positions with salaries that would fall below the Department’s proposed $50,440 per year (or $970 per week) threshold or the increased salary threshold for highly compensated employees.  These employees will either need to receive a bump in salary to put them over the minimum threshold or be reclassified as non-exempt.  For those likely to be reclassified, employers should start trying to estimate future compensation costs by looking at how many hours per week these employees are currently working. Employers should also start thinking about whether they will need to hire additional full-time, part-time or seasonal employees or whether they will need to compensate newly reclassified employees at a lower hourly rate (as compared to their current weekly salary divided by 40) to offset the potential increase in overtime costs.  In determining hourly rates for newly reclassified employees, keep in mind that the minimum wage in New York increases to $9.00 on December 31, 2015.  In the Hospitality Industry, tipped workers and fast food workers in New York may also be in line for wage rate increases on December 31, 2015, pursuant to proposed regulations issued by the New York State Department of Labor. Finally, employers should start thinking about how these changes will be communicated to their employees.  An effective communications strategy will be an important part of managing the uncertainty and anxiety surrounding the potential reclassification of an unprecedented number of positions in the workplace.