Salaried Employees are Exempt from Being Paid for Overtime, Right?

Yes, so far, but . . .

A recent rule change to the Fair Labor Standards Act will affect many small businesses with salaried employees. The rule increases the employee salary-threshold requirements from the current $23,660 per year to $50,440: a jump of 113 percent. The rule could go into effect as early as July 2016.

The change means all salaried employees must be paid at least the annual threshold of $50,440 or they will not be exempt from the FLSA’s overtime requirements. That is, they are restricted to working no more than 40 hours per week, or be paid time-and-a-half for hours worked beyond 40 per week.

The Society for Human Resource Management (SHRM) calls the change "too much, too fast.” Nancy McKeague, SHRM Senior Vice President, noted that “The rule’s automatic increases in the salary threshold would require more increases in payroll costs, as well as 401(k) contributions and life insurance premiums."

Besides requiring reclassification of employees and adjustment of salaries, the new salary threshold will likely cause wage compression issues with entry-level and midlevel employees’ salaries nearing the level of their managers, McKeague pointed out, meaning employers will need to provide additional salary increases for managers and directors, further adding to the hit on payroll costs.

Currently, this change is tracked to move ahead, but there are efforts afoot in congress to pass a bill reducing the salary amount or the timing. We will continue to track this change, and employers need to stay tuned.

We can help you to audit your salaried employee pool to help ensure that your business remains in compliance with the law. Call Patrick O'Donnell, our Certified Labor and Employment Law Specialist, at (763) 295-2107, for more information.