Salary shakeup

Change to DOL overtime rule to impact salaried employees

Posted on Jan 15, 2018 :: Back Office Operations
Posted by , Insight on Manufacturing Staff Writer

A NEW DEPARTMENT OF Labor rule to raise the minimum salary for exempt employees may result in some manufacturing companies spending the new year reviewing how they classify certain employees.

The new rule, expected sometime early in 2018, would replace the 2016 DOL Fair Labor Standards Act developed during the Obama administration.

It would have raised the minimum salary for exempt workers — those not eligible for overtime pay — from $23,660to $47,476 per year, says Michael Henckel, associate editor and HR subject matter expert at J. J.  Keller & Associates.

FLSA rules require employees to earn a certain salary level and perform certain duties to qualify for exemption — essentially executive, administrative or professional duties — also called a “duties test.”

“If either one fails, then you cannot be considered exempt from overtime,” Henckel says. “By default all employees are considered non-exempt and eligible to earn overtime.”

The 2016 rule was struck down in August by a U.S. District Court, which ruled the salary threshold was too high and made the duties test irrelevant, according to the Society for Human Resources Management, a professional human resources organization.

The court also took exception to the rule’s automatic three-year adjustment provision.

The DOL then went back to the public with a Request for Information to gather input on a new proposal, receiving more than 140,000 comments, Henckel says.

“The DOL had asked for comments from the public or business owners on what they felt would be acceptable —should the salary be lower than that, higher than that, do they want to have regular increases to the salary just to keep up with inflation?” Henckel says.

New Secretary of Labor Alexander Acosta has said the new rule might raise the salary threshold to the $33,000 to$35,000 range, Henckel says.

Manufacturers won’t need to worry about how it impacts hourly employees such as production workers, maintenance mechanics, welders, CNC machinists and others. They will, however, need to take a closer look at salaried employees such as engineers, chemists, managers and others who might fall under the category of professional employees and would be impacted by the rule.

Some manufacturing companies may already have gone through that classification review when the 2016 rule was issued.

“The Obama administration rule was supposed to be effective last December, so a lot of human resources departments had already gone through their employee base and said, ‘What are the groups of people that are affected by this?’” Henckel says.

Otherwise, companies may decide whether they can afford to increase those salaries and choose to reclassify certain employees to non-exempt and pay them for the overtime hours.

Actions might include salary adjustment to keep exempt employees at the new threshold or a reclassification to non-exempt.

“If employers had already done that and made appropriate changes, they may not be affected by this at all, depending on what comes out with this new rule,”Henckel says.

It’s unclear whether the DOL will change only the salary level, or if the department plans to revisit other parts of the rule as well, such as which types of workers can qualify for exemption.

“As we get down the line more and get at least a view of whatthey’re proposing, at that point we would be able to give more detail,” Henckel says. “Right now, it’s all speculation.”

While SHRM supports updating the salary level, the organization has said doubling it would have been too aggressive, concerned that professional employees would lose their exempt status and flexibility in scheduling. The regulations also could have caused employers to limit overtime hours overall. The2016 rule would have extended overtime protection to 4.2million more workers, according to SHRM.

Buckley Brinkman, executive director/CEO at the Wisconsin Center for Manufacturing & Productivity, says while the impact of the rule change remains to be seen, manufacturers will be looking att heir options for managing it.

“I think it’s the usual ones— you’re managing hours to stay under the requirement,” Brinkman says. “It would, in some cases, make the business case for automation hold up in places that were maybe borderline. I think it’s going to be the same thing that we see as people just plain get harder to find.”

That is one of the top challenges facing manufacturer sthroughout Wisconsin — finding the skilled labor needed to fill those key positions.

Brinkman says manpower numbers in Wisconsin show that the workforce will only grow four-tenths of a percent between now and 2040.

“That comes out to about15,000 people, and there’s no way we can keep an economy growing if our workforce is only growing at.4 percent,” Brinkman says.

It means manufacturers will need to engage the workers they have and find technology that can improve operations, he says.

The DOL salary rule likely won’t have an impact on workforce growth either way.

“A lot of employers don’t understand how to pull all the levers — they look at pay, or they look at some superficial things that affect their employees and they don’t really look at it comprehensively,” Brinkman says. “If you just kind of do it by pay, you’re going to end up pricing yourself out of the market.”

More important in attracting new workers will be for manufacturers to look at their brand — why someone would choose to work at one facility over another, Brinkman says.

“At the end of the day, people want to be actually engaged in something meaningful within their job and they want it to be meaningful to the rest of the world,” Brinkman says. “I think if employers figure that out, they’ll have a leg up on other folks.”