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Why Does the Proposed Rule Matter?

Proposed Changes to FLSA White Collar Exemption Rules

If implemented, the DOL estimates the new rule would extend overtime protections to approximately 5 million workers who are currently exempt under the white collar exemption rules. It would also clarify overtime compensation eligibility for another 6 million white collar workers.

Currently, salaried workers who fall above the $23,660 salary threshold and who are given some managerial tasks are considered “exempt” from overtime pay. Many argue that this exemption has allowed millions of workers to be misclassified as managers, even if the majority of their work is not spent on managerial tasks.However, under the new rule, managers who make less than $50,440 a year would be considered “non-exempt,” meaning they would be eligible for overtime pay. Therefore, in the case above, the individual would be entitled to 20 hours of overtime pay—assuming she does not meet all of the exemption criteria (salary basis, salary level and duties test).While employers can elect to stay the course and start paying overtime, for many businesses—especially smaller ones and nonprofits—this will not likely be fiscally possible. Employers will need to implement substantial changes if they wish to keep payroll expenses constant and avoid adjusting employee schedules too much.
Options for Employers
If the proposed rule is adopted, employers can avoid a lot of hassle by giving a raise to employees who are close to the salary threshold. For instance, consider a situation in which a retail store manager makes $49,000 a year and regularly works overtime. Rather than paying the manager time and a half, as mandated by the FLSA, the employer could bump the manager’s salary up to $51,000 a year to avoid incurring overtime expenses.While this is certainly an option, the DOL estimates that only 0.06 percent of workers in the United States would receive a straight-up salary increase as a result of the new rule. More likely, experts believe that employers will choose to cut hours or reduce base or hourly pay in an effort to find a more neutral cost
In order to avoid paying overtime costs:

  • Employers may limit overtime pay by developing more stringent overtime policies.
  • Employers may consider cutting or reducing benefits to make up for increased payroll expenses.

Switching from exempt to non-exempt status:

  • Employees may see changes to their paid time-off, health benefits or profit-sharing.
  • may lead employees to worry about their financial stability when changes are perceived as a demotion.
  • Employees may get financially strained, their work may be negatively affected and employee morale may drop.

No matter which options are pursued, the new white collar exemption rules will likely have a significant impact on your business. Not only will they influence your bottom line and employee morale, but if not properly executed, they may also result in compliance penalties.

Compliance Penalties

If the proposed rule is adopted, employers that fail to implement overtime changes may face various penalties prescribed by the FLSA, including lawsuits, criminal charges, fines and restrictions in commerce.

Private Lawsuits:

The FLSA allows employees who do not receive the overtime wages they are entitled to receive to sue their employers. Employees may do this either individually or through collective action. Either case may present a significant cost for an employer to defend.

Criminal Charges:

Employers that willfully violate overtime payment requirements face the possibility of criminal charges.

If convicted, employers may be ordered to:

  • Pay a fine of up to $10,000;and
  • For a second or subsequent violation, face imprisonment for up to six months (or both a fine and imprisonment).

“Willful” under the FLSA applies to a conduct an employer performs while knowing it was prohibited under the law. “Willful” also applies when an employer shows reckless disregard for the requirements of the FLSA.

Employers that willfully or repeatedly violation overtime payment requirements are subject to a civil penalty of up to $1,100 per violation.

“Hot Goods” Provisions:

In addition to other penalties, the FLSA prohibits employers from shipping goods in interstate commerce if those goods were produced in violation of the law.

“Repeated” under the FLSA applies to an employer that commits a violation after receiving previous notice that it was in violation of the law. This notice must be provided by an authorized government agent.