Final DOL Rule and HR Big Change: The New Exempt Employee
|US Dept of Labor|
It is out, giving a little sense of relief because the wait is over and clarifications are made. Relief also for all because the anticipated yearly threshold has been lowered to less than $50,000. This overhaul will affect over 4.3 million current executives according to The White House. As expected, reactions vary and opinions are conflicted, with negative reactions from several in the business community, particularly the retail world. Indeed, it is a dramatic change that somehow misaligns (or aligns? - depending on interpretation -) the US pay philosophy to the European approach, where "cadres" - roughly the equivalent of executives and professionals - are by definition not entitled to overtime (OT) pay, while pay increase linked to inflation is granted in one way or another. This marks a huge cultural transition among US workforce. Although it is a rough passage for many, continuum is observed in some facets of the OT change. For some simple interpretation click here, and for official ruling click here.
Briefly: The New Numbers To Remember
- 40 Hours workweek maximum: No change. beyond 40 hours, overtime pay applies, regardless of titles and positions as long as minimum salary threshold for OT exemption is not met.
- Note the $47, 476 new exempt salary threshold. There is a change in salary level test. Employees can be paid on a salary basis, and yet be eligible for OT pay. However, the difference is in the pay level test to identify white collar executives.
- Nondiscretionary bonuses count up to 10% in order to meet the salary threshold requirement. That is, 10% can be covered by commission, bonuses and incentives.
- Highly Compensated Executives (HCE): $ 134,004 yearly - Regardless of duties, this is the threshold for HCEmployees and therefore de facto exempts them from OT.
- December 1, 2016: Effective date of the New FLSA rule on OT.
- Automatic increase: every three years. The first one is scheduled for January 1, 2020. The automatic increase is to align salaries with inflation and maintain the salary level test for exempt employees.
What does not change?
There is no change in the duties test as pertaining to executive, administrative or professional (EAP) duties. No need to rethink percentage of managerial work for example. Simply put, to classify a position as executive, changes in job description is of little relevance. Yet, reclassification could be necessary because of the salary level test. Therefore, updates are still needed.
Overall: Cultural or Global Change?
This is a big change, that like any, will not go unchallenged in various ways by both employers and employees alike. Amidst all anticipations and speculations, most companies have already prepared themselves for the overhaul. Many in the retail world, for example, have either already limited managers workweek to 40 hours, and/or declassify some executives to hourly compensation.
What about Benefits? We will continue to see the impact on benefits compensation, alongside the impact of globalization of work and the effect of European benefits approach. Now that bonuses count for 10% towards the salary, we might see a change in executives benefits. A push on commission philosophy would not be surprising in some sectors. Also, maybe more middle-level executives will have their benefits compensation revised, aligning them more closely to their European counterparts.
This is a step towards more changes in the US workforce culture and management. Changes are also occurring at the global level. Does this change sets the US apart even more? To be seen...