It’s time for human resources professionals to devise a plan for coping with a potentially drastic increase to the Fair Labor Standards Act’s overtime threshold, a Cozen O’Connor attorney said Thursday.
Employers should consider “right now” how they would tackle a change that could increase the FLSA’s regulatory salary threshold for overtime eligibility from about $35,000 to about $55,000, Mariah Passarelli, member of the firm, said during a virtual conference.
The U.S. Department of Labor proposed that change in August and is accepting stakeholder comments through Tuesday.
Exempt employees paid less than $1,059 per week, which amounts to $55,068 per year, will lose their FLSA exemption if the proposed threshold is finalized, Passarelli explained. If that happens, employers have a few options.
Some will choose to reclassify affected employees as nonexempt, paying them overtime; some in that group may remove work from those employees in an effort to minimize overtime hours worked, she said.
Other employers might increase pay for exempt employees to at least $55,068 to avoid the overtime obligations that would result from the rule, Passarelli said, but the budget needed for that could be significant. “I think it’d be out of reach for many companies.”
Employers can’t simply ignore an employee’s duties, however. “You have to make sure the salary basis test has been met, but you also have to comply with the duties [test],” she said. The same goes for any state or local requirements. Otherwise, an employer could find itself paying up to $20,000 extra to someone who remains exempt — “and that's probably the least attractive of all possible options,” Passarelli said.
While DOL could make changes to the rule before it is finalized — and any final rule also is likely to face judicial challenges — she said it’s still important to plan.
Changes don’t have to be made yet, sources previously told HR Dive. But Passarelli recommended attendees ask themselves: “Do you have a thoughtful plan for what happens if the salary basis jumps in the way that it will if this proposal is passed?”