New salary threshold will affect many businesses Dec. 1

Question: What was the final decision by Fair Labor Standards Act regarding the minimum wage?

Answer: Effective Dec. 1, 2015, the U.S. Department of Labor increased the salary threshold for white-collar exempt staff to $47,476 annual or $913 per week. They also put into place a mechanism to ensure that this threshold does not become outdated and ineffective; there will be an automatic increase every three years beginning on Jan. 1, 2020. Certain exceptions to the minimum salary requirement still apply, and the positions not subject to the new rule include teachers, outside sales, doctors, lawyers.

Q: When the final rule becomes effective in December, how many businesses in Hawaii will be affected?

A: At ProService Hawaii we identified 50 percent of our clients having one or more employees that are potentially affected by the new rule. If this holds true across the state, 1 out of 2 businesses would be affected.

Q: What are some of the rules?

A: The biggest change is increasing the salary threshold from $455 to $913 per week. This increase sets the new standard salary level equal to the 40th percentile of weekly earnings for full-time salaried workers in the lowest-wage Census region, currently the South.

Q: How can business owners adapt to the Department of Labor’s changes to the Fair Labor Standards Act?

A: There are several options that business owners can consider before making the change in December. We are assisting our clients in determining the best of these four options: increase wages to meet the new threshold, keep the salary the same and pay overtime for hours worked in excess of 40 in a workweek, move the worker to hourly and adjusting hourly rate of pay to account for overtime hours, and pay the worker on hourly basis and limit hours worked to ensure no overtime is due.

Q: Who is covered by FLSA rules?

A: Generally, employees of companies that receive $500,000 or more in annual revenue and are engaged in interstate commerce are covered by FLSA.

Q: How does this change affect business overall?

A: Affected workers will see an increase in pay whether the wages are increased to meet the new threshold or they receive overtime pay for hours worked in excess of 40 per week. This means an increase in business expenses, and consumers can expect to pay more for products and services to account for higher businesses expenses.

Q: What are possible next steps for the businesses?

A: Assess all of the employees to determine if this final rule has a direct effect on their business and employees. If so, ensure that staff paid on exempt basis qualifies to be exempt from overtime. For anyone who does not qualify, move them to an hourly pay method and track hours, pay overtime hours worked exceed 40 in a workweek.

Q: Will businesses be switching employees to overtime or keep them exempt of overtime with a higher salary?

A: Likely both; these are the two basic solutions, moving folks to hourly pay or increasing the wages of exempt staff.

There are other options to consider, such as moving folks to hourly pay and hiring additional staff to ensure no one needs to work excessive hours.