Should We Wait to Comply with the FLSA?

Many clients ask: Should we wait until the upcoming presidential election to comply with the FLSA?

The short answer is:  No. Since the new regulations are effective on December 1, 2016, you really can’t wait to comply with them.

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Let’s dig a little deeper into the timing of the election, the effective date, and the rulemaking process.

The New FLSA Regulations

In 2014, President Obama directed the Department of Labor (DOL) to update (and “modernize”) the FLSA regulations that determine which employees are exempt from overtime rules. President Obama requested this directive in response to gridlock in Congress over proposed minimum wage and other employment laws.

Most of us remember how a bill becomes a law from civics class – or at least from watching Schoolhouse Rock. That poor paper bill had to sit on the stairs on Capitol Hill, wait for committee hearings, and hope that the President signed it instead of vetoing it.

The fact is, most ideas become laws through the agency rulemaking process.

Agency rulemaking follows an established process of public notices and response periods. Here’s how the FLSA regulations changed:

  • On July 6, 2015, the DOL published a notice of proposed rulemaking, and received more than 270,000 comments.
  • On May 18, 2016, the DOL announced that it would publish the Final Rule to update the regulations.
  • The Final Rule became law when it was published in the Federal Register on May 23, 2016.

The effective date of the new FLSA regulations is December 1, 2016. Although the duties test did not change, the new regulations:

  • Raise the standard salary level from $455/week, or $23,600/year to $913/week, or $47,476/year
  • Raise the total annual compensation requirement for highly compensated employees from $100,000 to $134,004
  • Establish a mechanism for automatically updating the salary and compensation levels every three years

These are significant changes that every U.S. employer must review, analyze, and communicate, regardless of their size. You’ll want to get started right away on your review; I talked with one HR professional who was already 6 months into her analysis and communication plans!

Will the New President Change the Rules?

It depends on who wins. It’s unlikely that Hillary Clinton would direct the DOL to change these rules. If Donald Trump wins, he may direct the DOL to change the rules, but this takes time. Also, remember that the new president isn’t even sworn in until January 20, 2017, which is over 7 weeks after the new regulation’s effective date.

It takes time to change the FLSA regulations. It took a year for the administrative rulemaking process to change the current FLSA regulations, so it’s reasonable to expect that changing the rules again will take a similar amount of time.

Will a lawsuit stop the rules from becoming effective?

As of this writing, 21 states have filed suit to stop the DOL from implementing its new regulations. The lawsuit alleges that the changes to the regulations aren’t constitutional. However, it appears that the DOL followed the agency’s rulemaking process, so this is a difficult argument to make.

The bottom line: prepare for the change to happen on December 1, 2016. Even if the law is overturned sometime in 2017, millions of employees will be eligible for overtime based on the new regulations. And that, my friends, represents millions of dollars in back wages and taxes if your company isn’t compliant on December 1, 2016.



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