Guest blog: Department of Labor's new proposed rules may call for alternative compensation plans for salaried employees

Julie Bhusal Sharma

by Kevin Hess

TheDepartment of Labor (DOL)has finally released its long-anticipated notice of proposed rules to updating theFair Labor Standards Act's (FLSA) overtime exemptions.The new rules are likely to make millions of more workers eligible for overtime pay and could further open the floodgates to wage and hour litigation.

Among those proposed rules is a call to increase the minimum salary for an executive, administrative, and professional exemption from $455 per week which is $23,660 annually to $921 per week which annualizes to $47,892. This will affect many businesses throughout central Ohio as employers will be struggling to find an FLSA-compliant pay plan for employees whom they can no longer treat as exempt. Employers should start taking steps now to assess the potential effect on their businesses and formulate a game plan. Scrambling at the last minute to find a pay plan for employees who are no longer exempt from overtime pay would be a recipe for disaster. Here are a few thoughts to consider.

Assigning employers an hourly rate based on the number of hours they work each week is one way to proceed, but this might be undesirable from a payroll-cost standpoint. It may also rub the previously-salaried employees the wrong way.

Management could instead pay the employee a weekly salary representing straight-time compensation for his or her hours worked up to 40 in a work week. For the employee's hours worked over 40 in a particular workweek, the employer would pay overtime compensation at not less than 1.5 times the rate obtained by dividing 40 into the weekly salary. A plan like this might be more acceptable to employees than a purely hourly one, but it could also be cost-prohibitive.

Another approach would be to pay an employeea weeklysalary representing straight-time compensation for all of his or her hours worked in a workweek. The salary is the "one" of "one and one-half" in this scenario, overtime premium due for over-40 hours is computed at one-half of the rate figured by dividing all of the workweek hours worked (not just 40)into the weekly salary. These types of arrangements are not legally deficient, even though current administration seems to disfavor them.

This only scratches the surface and employers must take into account a number of other details and considerations in deciding what to do and how to do it. Also, these are not the only potential alternatives as another FLSA exemption might be a possibility in some circumstances.

Whatever plans are adopted, employers must be aware and in compliance with state and local wage-hour requirements as well, not just the FLSA.

It is important to be thinking about these matters now, before you are facing the time-pressure of impending exemption changes.

Kevin Hess is a senior associate in the Columbus office of Fisher & Phillips, a national labor and employment law firm. He has particular experience in workers' compensation and employment litigation. His practice focuses on workplace health and safety and he also represents and counsels employers on compliance with employment-related laws.