A final ruling has been made, and employers in Central Virginia and across the United States have until December 1, 2016 to make the changes needed to comply with the final ruling.
As was recommended in an article published earlier this year, employers in Central Virginia needed to be prepared to address the upcoming ruling regarding updates to the Fair Labor Standards Act (FLSA). As a recap, in 2014 President Obama instructed the Department of Labor (DOL) via a Presidential Memorandum to update the guidelines that define exempt employees who are protected from the Fair Labor Standards Act related to minimum wage and overtime. The concern of the President was to ensure employees were paid fairly for their efforts at work. The instructions stated the DOL was to identify methods to both “modernize and simplify” the rules while at the same time safeguarding the FLSA’s overtime provisions.
Consequently, in July of 2015 the DOL provided a Notice of Proposed Rulemaking (NPRM) in the Federal Register and encouraged those who were interested to submit comments in writing not later than September 4, 2015.
There were more than 270,000 comments received that were utilized in formulating the final ruling. On May 18, 2016 President Obama signed into order the updates in this final ruling. The stated purpose of the ruling includes the following:
A. Increase wages for middle-class workers
B. Protect overtime provisions
C. Provide predictability for wages
D. Provide work-life balance
E. Increase employment opportunities
F. Improve health
G. Increase productivity
According to the DOL, the primary requirements of this ruling emphasize updates to the salary and compensation levels for Executive, Administrative and Professional employees to maintain the exemption from overtime provisions. The DOL summarizes the final ruling as seen below:
1. Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South (from $455 per week increased to $913 per week; $47,476 annually for a full-year worker);
2. Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally (from $100,000 increased to $134,004)
3. Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.
4. Amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.
There are many available options to ensure your organization is in compliance with the final ruling. It is recommended that each employer carefully review the ruling and its provisions as it applies to the industry as well as the specific classification for its employees. One example of an option available to employers includes the ability to re-classify job positions by changing the job duties and rewriting the job descriptions for the exempt positions. In doing so, the positions may be able to be re-classified as non-exempt and therefore would incur the regulations that apply to overtime for non-exempt workers rather than the salary test for exempt workers. However, caution must be exercised as these types of changes cannot be completed arbitrarily but must be carefully considered as the duties test for exempt workers still applies under the final ruling.
In conclusion, the ruling also requires there be automatic updates every three years beginning on January 2020. Ultimately, employers in Central Virginia and across the United States have until December 1, 2016 to make the changes needed to comply with the final ruling. While the purpose of this ruling is to increase wealth of the middle-class citizens in the United States by putting more than $1.2 billion in their pockets, organizations will need to strategically evaluate the impact to the short and long term objectives so as to ensure sustainability and opportunity for a competitive advantage in the marketplace.
By Colleen McLaughlin,
SPHR
