I published an e-mail blast on Monday regarding the doubling of exempt employee minimum salaries effective December 1, 2016. On Tuesday, November 22, 2016, Judge Amos L. Mazzant of the United States District Court for the Eastern District of Texas granted an Emergency Motion for Preliminary Injunction, halting the implementation of the changes to the Fair Labor Standards Act (FLSA) that were scheduled to take effect on December 1, 2016. There is no new date for implementation at this time.
While Judge Mazzant presides in the Eastern District of Texas, this injunction has a nationwide impact. In other words, this Rule requiring a minimum of $47,476 in exempt employee salary or the payment of overtime is not being implemented at this time. The minimum salary for exempt employees remains $23,660.
A copy of the full Order can be found here.
If you have questions of what to do now, the Employment Law team at Cooper Levenson, P.A. can help you with compliance and how to undo any changes you may have implemented in light of the anticipated Rule change.
Exempt Employee Pay Doubling December 1, 2016
11/21/16 - Drastic changes to salary requirements under the Fair Labor Standards Act [FLSA] take effect in approximately 2 weeks. Is your company ready? If any of your employees are paid on a salary basis, with no opportunity for overtime pay, these changes will likely impact your business.
Traditionally exempt employees, including those in managerial, professional, or administrative roles are often paid on a salary basis. Beginning on December 1, 2016, the Federally mandated minimum salary for exempt employees will be $913 per week/ $47,476 annually. This requirement more than doubles what employers must pay their exempt employees from the previous $455 per week/$23,660, annually.
Even if your employee meets the duties test for exempt employee status, if their rate of pay is less than the $913 per week you will be made to pay them overtime unless you take action now.
There is an option available for employers to provide "catch up payments" to their exempt employees who will fall short of the minimum salary. This involves paying up to 10% of the exempt employee's salary in the form of a bonus or "catch up payment" in order to meet the minimum salary requirement and retain their exempt status.
An example is illustrative here (you can click here for a full explanation of the math):
Employee A and Employee B work for "Any Company." They each hold an assistant manager position, but Employee A earns $46,000 annually and Employee B earns $36,000. Assume both meet all of the requirement for exempt employee status, both work 55 hours per week, and neither receives overtime pay. Under the new Final Rule for Overtime payments, Employee B will possibly be paid almost $2,000 more, on an annual basis, than Employee A.
Had "Any Company" paid better attention to the changes in this law, they could have planned ahead for this change and avoided this discrepancy.
With careful planning, employers can make the most prudent choices for payment of their employees under the FLSA. You can start the planning process on your own by taking the following action:
- Make a list of all employees who are currently paid on a salary basis;
- Consider each employee and whether they meet the requirements of an exempt employee under the law;
- Evaluate their salary and whether it meets the minimum salary basis of $47,476 annually.
There is no prohibition on paying exempt employees on an hourly basis at a rate that is not equal to the $47,476 annually. Such employees are entitled to overtime pay and employers can regulate the use of overtime through workplace rules, even requiring that overtime be approved in advance. Discipline can be imposed for violations of such overtime rules, however, employees must always be paid for all hours worked, including their unauthorized use of overtime.
For questions pertaining to this decision or any other employment-related questions, the author of this article, Amy E. Rudley, Esquire, a Partner in Labor & Employment Department of Cooper Levenson, P.A., may be reached at 609-572-7408 or via e-mail at firstname.lastname@example.org.