Is There Going to be an Increase in the FLSA Salary Threshhold … or Not?

By Barbara Freet, PHP, President of Human Resource Advsiors

employees-1704059_1280The Fair Labor Standards Act (FLSA) was originally passed in 1937, and it has seen several updates since then with the most recent attempt scheduled to go into effect on December 1, 2016.  As you are no doubt aware, it was delayed by order of a federal judge in Texas on the grounds that the US Department of Labor (DOL) exceeded its authority by raising the minimum salary threshold from $23,660/year to $47,476/year.  What does all this mean?

There are a number of states that use the rules of the FLSA as their state wage and hour law.  In October twenty-one states filed an injunction to halt the enactment of this new rule. Part of the reason goes back to the reason why the new rule was passed in the first place.  The stated intent was to raise the wages of people in low-level managerial jobs, such as those in fast food or retail establishments, by making employers either raise their salary or pay them overtime. Those against the new rule stated that it raised the salary threshold too high too fast.

A word or two of background might help at this point. All wage and hour legislation focuses on the classification of a particular position as “exempt” (meaning exempt from wage and hour law) or “non-exempt” (meaning not exempt from wage and hour law).  “Exempt” positions fall under several categories found in the FLSA and some state labor codes. To determine if a position can be classified as exempt, it has to meet two tests. The first is the “duties test”—do the functions of this position involve high-level training or licenses, is there a lot of independent judgment used and does it require a high level of responsibility? The second is the “salary test”—is this person paid a high enough salary for it to be considered exempt?   The theory is that if you say this person is an office manager but pay her the same wage as your bookkeeper, she is probably not in a position that is given much responsibility because bookkeepers don’t meet the duties test and are almost always non-exempt.

Many people have mistakenly thought that if you pay someone a salary rather than an hourly wage, that makes them exempt. That is not true. If this ruling goes into effect at some point, a lot of positions may meet the duties test but they won’t meet the salary test, which gives employers two choices:  1) give those people a raise so they continue to be exempt and now meet the increased salary threshold, or 2) keep them at the same rate of pay but make them non-exempt and therefore eligible for overtime.

What should you be doing now in this limbo period?  If you haven’t done it already, look at each position in your company or practice and determine the classification of each as either exempt or non-exempt. This is very important. Human Resource Advisors is available to help you review your employee classifications. Contact us at barbara@hradvisors.net or call 925.310.4824.

If you have exempt employees, make sure they are making more than the new anticipated federal rate of $47,476.  If they are, then you are fine; if they aren’t, then you should decide which choice you wish to make: 1) give them a raise, or 2) change them to hourly and keep their salary the same.

One word of caution: CA and some other states have their own wage and hour law which has a salary threshold that has always been higher than the federal threshold. If this law does become effective and the salaries of those considered exempt aren’t at the $47,476 level, you will have to be prepared to raise their salary or make them non-exempt. The rule is that whatever is best for the employee takes precedence. So far this salary rate is the highest in the nation so it would be the threshold that would have to be met by all states.

We don’t know how President-Elect Trump feels about this significant raise in the salary threshold. The ruling could therefore go into effect very quickly, or it could be scrapped because it could also cause a fairly drastic increase in the cost of goods and services. To be safe, you should be prepared by making sure your classifications are correct—that is a good risk management step regardless of how this issue is decided going forward. And then be prepared to give raises or change the classification if this rule does go into effect quickly.

 

Barbara Freet, PHR, is the Founder and President/CEO of Human Resource Advisors, specializing in consulting, product development, sales and training. She is sought out by professional groups and private employers as a guest speaker on a variety of employment-related topics. She founded the company in 1991. Learn more at http://www.humanresourceadvisors.com/.