Fair Labor Standards Act (FLSA) FAQs

by Malak Kazan, CECP, CCP, CBP, GRP 18. August 2015 11:08

 

ERI developed the Occupational Assessor (OA) FLSA module over ten years ago to provide organizations with an efficient method for beginning the process of classifying employees as exempt or non-exempt from overtime regulations.  For this reason, ERI closely watches all developments relating to the FLSA and to the overtime regulations at the federal level and for the nine select states that the cloud-based Occupational Assessor covers.  Not surprisingly, we have received many questions related to the Notice of Proposed Rulemaking announced on July 6 and provide the FAQs below to assist subscribers with planning.  ERI’s upcoming webinars, “Navigating FLSA Compliance,” scheduled for September 19, 2015, and December 8, 2015, will also address the proposed rule changes (register here).

 How different are the proposed changes?

The proposed changes affect the salary levels of “white collar” exemptions (e.g., Executive, Administration, and Professional exemption tests).

In an effort to keep the regulations current without having to go through the typical proposal-comments-revisions-implementation cycle, the minimum salary level required to be exempt will be based on data from the Bureau of Labor Statistics (BLS). Specifically, the minimum salary will be tied to the 40th percentile of earnings for full-time salaried workers from the annual BLS data.   The latest 40th percentile annual salary reported in the context of this proposed change is currently $47,892 (or $921/week)  and is expected to increase to $50,440 (or $970/week) by the time the rule is law.  The current salary level is $23,660. 

The annual compensation level of Highly Compensated Exemption test (HCE) which is currently set to $100,000 is proposed to be changed to $122,148, which represents the 90th percentile of all salaried employees from the annual BLS data.  This test requires that some exempt duties be performed on a “regular basis” and that the annual compensation be met.

How often is the minimum salary level value expected to be updated?

To prevent the effective erosion of the salary level thresholds, the proposed regulations will likely incorporate the requirement to update the salary level annually based on the 40th percentile of the BLS data or possibly based on inflation tied to the Consumer Price Index for All Urban Consumers (CPI-U).

Which employee groups will likely not be impacted by the salary change?

The proposed rule changes make no inference to impacting the following groups:

  • Non-exempt employees who are paid on a salary-plus-overtime basis
  • Salespeople in the "outside salesperson" exemption
  • Teaching professionals
  • Lawyers practicing law
  • Doctors practicing medicine
  • Employees meeting the computer exemption, paid an hourly rate of at least $27.63 

Depending on the “comments” submitted prior to the final outcome, the employee groups impacted may be revised.

How does ERI’s Occupational Assessor work?

The user begins by conducting an appropriate job match by selecting a job title and reviewing the corresponding job content.  The user then selects the specific location based on the ZIP code of the incumbent(s) and chooses the industry sector from over 1,200 codes or descriptions.  Next, the user is prompted to evaluate the job content based on each of the exemption tests and answer specific questions related to FLSA requirements. The OA then provides a prediction regarding the exemption status of the job based on the user’s responses to the set of questions for each exemption test.     

Which states currently have unique overtime laws and are reflected in the product?

  • California
  • Colorado
  • Connecticut
  • Hawaii
  • Kentucky
  • New Jersey
  • Pennsylvania
  • Washington
  • Wisconsin

Can I do job-level or incumbent-specific analysis?

There are a number of factors that determine the approach to auditing your organization to comply with this new requirement.  As a best practice, FLSA analysis should be conducted on an incumbent basis.  If you have multiple incumbents in the same work location and your supervising “performance” managers are well trained, conducting a job-level analysis may be a reasonable approach. 

Do the results provide the total cost impact of the changes?

No. The results are a prediction of the exempt status for a given incumbent based on the responses to the FLSA job analysis questions.  

Organizations should begin cost impact analysis based on a number of possible scenarios:

  • Give salary increases to all exempt employees earning less than the proposed salary level threshold.
  • Reclassify jobs based on the current number of hours the employees are working.
  • Hire additional employees, while limiting work hours to prevent overtime costs.
  • Reassign some of the non-exempt duties to full-time non-exempt roles.

How often do I have to evaluate the classification of my jobs?

As an on-going process, organizations should evaluate significant changes to their business operations relative to the impact they have on employee job design and responsibilities.  ERI’s Occupational Assessor allows you to easily review the date, job analyst who conducted the assessment, and full details of the assessment.  Below is example of the FLSA Library tab where authorized users can retrieve, update, and audit job classifications.

How soon will these changes be reflected in the Occupational Assessor?

We plan to release a special update when the regulations become law.  Based on the regulatory process and the possibility that the current comment period may be extended another 60 days beyond the deadline of September 4, 2015, the rule may not get finalized until sometime in Q1 2016, requiring companies to comply as early as Q2 2016.