Radical Changes Coming to Salary & Overtime Regulations in 2016
By July 2016, the Department of Labor is slated to release new regulations that will raise the minimum salary requirement for exempt employees. Currently, in order to be exempt from the overtime requirements of the FLSA, an employee must earn a minimum salary of $23,660 and have specific job responsibilities. Under the proposed rules, initially released July 6, 2015 for public comment, the minimum salary would be increased to $50,440. This means that currently exempt employees making less than $50,440—even if their job responsibilities would otherwise qualify them to be exempt—would have to be reclassified as non-exempt. Employers would then be required to pay overtime to these employees once these regulations become finalized.[1] Nonprofit, church, and other employers will have the option of either reducing the hours of reclassified employees to avoid paying overtime or increasing salaries to reach the minimum threshold. Ordained ministers, even if below the salary threshold, may qualify for an exemption from FLSA.
The Department of Labor (DOL) is seeking to raise the Fair Labor Standards Act exempt employee salary test to approximately $50,440 per year, or $970 per week, and recommends indexing the salary test to either the 40th percentile of weekly earnings for full-time salaried workers or the Consumer Price Index for All Urban Consumers (CPI). Thus, this salary limit may rise in future years.
Since the comment period closed earlier in the fall of 2015, there has been wide speculation about the FLSA exempt salary rule’s direction and the timing of its release. The DOL received almost 300,000 comments on the proposed changes to the overtime regulations. There have been no announcements regarding other possible changes to the exempt employee rule, such as changes to the duties test, which may also be forthcoming. But the DOL is meeting resistance to its proposed overtime standards from within its own government ranks. For example, the Small Business Administration is arguing that the DOL’s proposed level is much higher than the California ($38,000/year) and New York State ($35,000/year) salary thresholds for exempt employees, which are considered to have some of the highest costs of living in the US.
However, when the Obama Administration finally released its fall 2015 Regulatory Agenda, it revealed that the DOL has targeted July 2016 as the anticipated date to publish the final rules updating the Fair Labor Standards Act (FLSA) overtime regulations for exempt and nonexempt employees. Thus, for budget purposes, churches and nonprofits should review their exempt employees who make less than $50,000 to decide how best to handle them when the regulations become effective. If close, one could raise the salary if the other duties and exemptions still comply. Otherwise, the employer will have to convert them to nonexempt employees, keeping track of their hours and paying overtime accordingly.
Simms Showers LLP’s nonprofit and employment attorneys are well-qualified to help your organization successfully navigate this new regulatory challenge.
[1] Since the salary element of the non-exempt test has not been raised in many years, it is very likely that these regulations will be implemented as the final rule starting in 2016.
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