The proposed rule would increase the current annual salary level threshold by 55%–from $35,568 to $55,068–making millions of workers eligible for overtime pay of at least 1.5 times the regular pay rate under the Fair Labor Standards Act (FLSA). The salary threshold is a key element of the executive, administrative, and professional exemption from overtime.
Included in the rule is an automatic update to the salary threshold “every three years to reflect current earnings data.” The threshold for the Highly Compensation Employees (HCE) exemption would increase from $107,432 to $143,988.
Potential Impact & Preparation
The significant threshold increase could have a significant impact on companies’ staffing and pay practices. Companies should begin now to plan their anticipated response, as the process of making classification and pay decisions tend to require substantial time and resources. Consider these preparation steps to save yourself from scrambling to comply:
- Identify employees who would be impacted by these changes. Take the opportunity to refresh yourself on the FLSA overtime exemption test criteria.
- Explore the alternatives of increasing their salary to meet the new threshold or reclassifying them as non-exempt.
- Consider the potential impact on employee morale, labor cost implications, and employee communications needed.