The U.S. Department of Labor has recently proposed regulatory changes that, if adopted, could dramatically expand the population of employees entitled to receive overtime pay. The Fair Labor Standards Act (the “FLSA”) is a long-standing federal law that established the basic minimum wage and overtime protections with which most people are familiar. In addition, state laws often set higher standards applicable to employees working in the state. Both New York and federal minimum wage and overtime laws have important exceptions for “exempt” employees, including for executive, administrative, and professional employees who receive a fixed salary (instead of an hourly wage).
“The government has proposed to lift the required salary for employees to qualify for exemptions to overtime.”
Currently, New York law sets a higher minimum annual salary required as a prerequisite to the exemptions ($35,100 under NY law versus $23,660 under the FLSA). However, proposed changes to FLSA regulations would increase the minimum salary under the FLSA to $50,440, with automatic increases to this threshold in future years based on market conditions. Given this proposed change, some employers will need to consider whether to reclassify exempt employees currently making less than $50,440 in salary to non-exempt status. In making this decision, employers should consider whether the federal law applies to their operations as a whole or to a given employee (in most cases, the answer is “yes”), and whether it is feasible and advantageous to convert these employees to hourly pay with overtime or to raise their salary above the new threshold.
Once the final rules are issued by in the coming weeks, employers will need to move swiftly to come into compliance, possibly as early as July 2016.
In some cases, the administrative burdens of tracking the time of the affected employees will outweigh the costs of increased salaries. Considerations of employee morale may also play a role. As executives and boards consider these issues, they should be mindful that there are no easy shortcuts here and that missteps can conceivably result in individual liability in some circumstances. Once the final rules are issued by in the coming weeks, employers will need to move swiftly to come into compliance, possibly as early as July 2016.
