At President Obama’s direction via a Presidential Memorandum to modernize and streamline the Fair Labor Standards Act’s (FLSA) overtime regulations, the Department of Labor has proposed changes to the current classification of employees as related to exempt and non-exempt employees. The three changes include the following: 1) increasing the threshold for exempt employees, 2) instituting an annual, automatic increase based on the 40th percentile or by the Consumer Price Index for Urban Consumers and 3) changing the duties test for exempt level employees.

Currently, the requirement is that the exempt employee must earn at least $23,660 annually. The proposed change states that the new salary threshold should be $50,440—an increase of 113%. In other words, all exempt level employees who currently earn between $23,660 and $50,440 will then be classified as non-exempt.

Who is Impacted?
If the proposal is passed into law, all federal requirements pertaining to non-exempt employees will apply to each of the workers who previously were able to work overtime without receiving any additional compensation. The proposed change would impact these employees by requiring the employer to now pay overtime to the newly classified non-exempt employee who works more than 40 hours per work week. As the law currently requires overtime to be not less than time-and-a-half of the individual’s hourly wage, this will be quite costly to the organization.

What Does It Mean?
For-profit organizations would immediately experience the impact to strategic goals as they would need to address organizational objectives impacted by the changes to their financial resources. Although all organizations will feel the financial impact of this change, small businesses and organizations that rely primarily on exempt classified employees falling in this affected pay range will find it most difficult to easily respond to the resulting financial changes. For-profit organizations may need to identify ways to increase revenue to attempt to offset these changes without negatively impacting their current employees’ job security.

What are the Special Concerns?
According to the United States Chamber of Commerce, there are considerable concerns for nonprofit organizations as well as state and local governments. The U.S. Chamber describes the issue as one in which previous employees who may have worked extra-long or odd hours will no longer be able to do so unless the organization can afford to pay them the extra for overtime. As stated by the Chamber, “Imagine calling a hotline for suicide or domestic abuse late at night and hearing a message like, ‘Thank you for calling our hotline, unfortunately no one can take your call right now because we cannot afford to pay overtime to our staff. Please leave a message at the tone.’”

Clearly, the above situation is unacceptable. Yet, how will these organizations, whose missions include providing food, clothing, shelter and support services to our communities, be able to function if their staffs are unable to maintain their current levels of work commitments? Nonprofit organizations primarily rely on the philanthropic giving of others as well as fundraising to accomplish their objectives, whereas the local and state governments rely on tax revenue. In the case of the latter, where increased revenue comes at the price of cutting services or increasing taxes, therein lies a significant issue.

Where Does the Proposal Stand Now?
Currently, the FLSA proposed changes are expected to be addressed either late spring or early fall of 2016. With the United States presidential election process underway, this has the potential to become a significant election issue. If passed into legislation, it is possible organizations may have little time to prepare for the changes. Therefore, it is critical that business leaders be proactive in preparing for the potential of this change to not only reach their organizations’ business goals but to also effectively care for their most valuable assets…their human resources.

By Colleen McLaughlin