In short…it will cost retailers more money in payroll without any positive impact on sales or productivity.
The Rule Change
In March 2014, President Obama directed the Department of Labor (DOL) to update the Fair Labor Standard Act of 1938 (FLSA) overtime protections with the goals of raise middle-class wages, increase the number of nonexempt workers, provide bargaining power to low-wage workers who do not have certain protections, and simplify the identification of overtime-eligible employees.
A New Salary Threshold
A standard salary level threshold placed at $47,476 per year ($913 per week) which is the 40th percentile of weekly earnings for full-time salaried workers in the lowest-wage Census region, currently the South. Also, a new Highly Compensated Employees (HCE) salary threshold is $134,004 annually = to the 90th percentile of full-time salaried workers nationally is being established. When calculating the salary, employers can apply non-discretionary bonuses and incentive payments (commissions) up to 10% of the new salary level or $4,747. These ayments must be made at least quarterly and incentive plans with annual payouts will not qualify.
Automatic Updates
Beginning on January 1, 2020, the salary level required for exemption will be automatically updated every three years. The standard salary threshold is tied to the 40th percentile of full-time salaried workers in the lowest-wage region, currently the South. A 7.7% increase over three years: 2020 estimated level of $51,168, similar increase for 2023 would reach $55,108, and a similar increase for 2026 would reach $59,351.
Decision Points
So with these changes becoming effective December 1, 2016, some decisions need to be made. There are three options:
– Increase salaries to $47,476 and continue to treat employees as exempt
– Reclassify employees to non-exempt status using a variety of pay options
– Restructure jobs, workforce, or operations
Risk:
As with any decision, there are risk. Here are some of the common issues you will run into:
– Press coverage inspiring employees and lawyers to seek avenues to recover damages
– More lawyers who become aware of and educated about how to file FLSA claims
– Marketplace chatter that leads to “me-too” concerns among a wide variety of employees
– Exempt employees who pay is not raised who think it should be
– Exempt employees whose pay is raised, but who think they should be reclassified as non-exempt/ overtime-eligible
– Reclassified employees who question why they weren’t classified as nonexempt, and paid overtime, all along
– Reclassified employees who think they were wrongly “demoted”
Solution
So, how do you come up with a solution? Here are the steps:
– Draft collaborative teams
– Determine appropriate data and strategy
– Develop a communication plan
– Design and deploy training that imprints
No matter what decision you come to, it will cost the organization more payroll dollars without any corresponding lift in business leading to the customer likely bearing the burden of this new rule in the form of price increases.
For organizations pondering this decision, I have a slide show outline of the key points in this article for you to use and modify for your organization.