Most people have heard the saying “a fair day’s pay for a hard day’s work”. My father used to lament the loss of this standard in the American job market. With the cost of living on the rise, a prevalent “keeping up with the Joneses” attitude, and a widening gap between upper and lower classes, it’s not surprising that many workers would complain.
Apparently somebody listened. In 2014, President Barack Obama issued a Presidential Memorandum calling on the Department of Labor to reconsider and update guidelines under the Fair Labor Standards Act (FLSA). The goal was to redefine which white collar workers are protected in terms of standards for minimum wage and overtime pay.
In addition to bringing these standards up-to-date, the President instructed the Department of Labor to simplify the rules and regulations, as well as ensure implementation. A lot can happen in two years and the Department of Labor proved itself equal to the task.
In July of 2015 they published their intended revisions as a Notice of Proposed Rulemaking (NPRM) in the Federal Register and invited question, comments, and concerns from affected parties. Not surprisingly, they received a huge number of responses (in the neighborhood of 270,000), which they took into consideration when crafting the Final Rule.
What is this Final Rule and who does it affect? Does it just impact American companies or will its reach extend to, say, Puerto Rico real estate law? How does it meet President Obama’s call for an update to fair wage standards? Here are a few things everyone should know about the Final Rule.
What is the Final Rule?
The final rule has to do primarily with wages for white collar workers, including updates to overtime standards. The biggest change is to compensation for salaried workers (ostensibly the middle class), who do not generally receive overtime pay.
The current salary threshold is $455 per week (or $23,660 annually). Salaried workers that exceed this amount need not necessarily be paid overtime for working more than 40 hours in a given work week. The Final Rule changes these standards, raising the salary threshold to $913 per week (or $47,476 per year).
This number was based on the 40th percentile of full-time salaried workers in the U.S. census region with the lowest wages (the south). It is estimated that this will extend overtime protections to some 4.2 million white collar workers.
Further, this threshold is set to be updated automatically every three years based on wage growth in order to preserve the percentile of the threshold. The rule also addresses exemptions.
For example, overtime pay may be controlled in a number of ways. Employers can offer overtime pay according to traditional standards, which is to say, paying time-and-a-half for any work in excess of 40 hours in a work week.
They can also raise salaries above the threshold, provide bonuses and incentive payments up to 10% of the new standard salary level, or simply limit employee work hours to forty per week (or employ a combination of these options). The Final Rule is set to go into effect December 1, 2016 and the first automatic update will occur January 1, 2020 (and every three years thereafter).
Who is Affected?
This law will primarily affect businesses that earn in excess of $500,000 per year, as well as certain white collar employees currently earning between $455 and $913 per week. Because the FLSA is a federal law, it will likely impact both territories and commonwealths subject to U.S. federal law (including, for example, Puerto Rico law, unless such laws are ruled inapplicable).
Will affected employees really make more money? That depends on employers, but affected workers will either earn more or work less. Employers can reduce spending on overtime pay, but only by mandating a strict 40-hour work week.
Do the Updates Meet the President’s Directive?
The President wanted to create meaningful change for many underpaid workers and the Department of Labor has delivered with their Final Rule, set to create a positive financial impact for over four million American workers. Will it realistically increase wages? That remains to be seen.
It’s hard to know what the actual impact will be. Will the final rule lead to increased wages or fewer work hours? Will companies be forced into layoffs? Will some businesses fold under the increased financial burden? It’s possible that all of these things will occur.
Whether people work in accounting, video game production, or real estate in Puerto Rico, this update to the FLSA is designed for the protection of workers. The implementation may be rocky, but ultimately workers are set to benefit from the Final Rule.