The U.S. Department of Labor’s new FLSA white-collar exemption regulations are scheduled to take effect Dec. 1, 2016, despite longshot efforts to pass legislation in Congress to repeal or delay the regulations and despite two separate lawsuits filed in Texas federal court seeking to block the regulations. Although the House of Representatives has passed a bill (H.R. 6094) to delay the effective date to June 1, 2017, a similar bill has not passed the Senate and, in any event, President Obama has promised to veto any such legislation. There is little chance that Congress could successfully override the veto. Consequently, employers should not take a wait-and-see approach regarding the Dec. 1 effective date.

What’s the Impact of the New Regulations?

As most employers are aware, the principle change in the regulations is the substantial increase in the FLSA minimum salary threshold for the executive, administrative, and professional exempt employees from $455/week to $913/week, which translates to an annual salary of $47,476.

The stated goal of the Obama Administration is to dramatically increase the number of non-exempt workers eligible for overtime pay. The USDOL estimates at least 4.2 million formerly exempt workers will become non-exempt workers. 

Unfortunately, as the law intended, many employers are being forced to convert current exempt employees to non-exempt status. This is a time-consuming and difficult task because it requires employers to reconfigure their payment methodologies while managing their labor costs consistent with market value and the employer’s ability to compensate the employee.

There are also considerable administrative issues involved in updating company policies, training newly non-exempt employees on timekeeping procedures, explaining authorized work schedules, and responding to employee morale issues because newly non-exempt employees may feel that they are being demoted or don’t understand their new status.       

Are You Ready?                                                                                                                                                 

Employers should conduct their planning by internally analyzing their current exempt positions, particularly those below $47,476 annually, and identifying options to minimize negative impacts on employee relations, direct payroll costs, indirect administrative costs, and general operations. Employers are strongly advised to do these analyses under the guidance of an experienced wage and hour attorney due to the complexity of potential issues and the availability of the attorney-client privilege to protect candid discussions involving legal advice and risk management.