Download the MP3 | Run Time: 10:29
Molly Kelley of Xenium HR has been closely watching the new Fair Labor Standards Act (FLSA) regulations proposal, which has been delayed. In this episode, Molly leads a discussion with Suzi Alligood and Brandon Laws where they discuss the status of the proposed regulation and what it means for employers and employees.
Molly: Welcome to the It’s About People podcast! This is Molly Kelley, Senior HR Business Partner for Xenium, and I’m joined by Suzi Alligood and Brandon Laws, also on our team here.
A pet project of mine has been to keep track of the current regulations and proposed changes to the FLSA, which is a lovely little acronym for the Fair Labor Standards Act.
Brandon: Thank you for defining that, Molly!
Molly: [Laughing] For the layman! Basically though, this has been something that’s been in the news kind of at a low level that’s been causing a lot of HR folks and some business owners anxiety, because it’s such a huge shift. What we’re talking about is basically an act that’s been around for quite some time that hasn’t changed in relation to the economic changes that have been happening. So essentially we haven’t accounted for inflation in wage increase, and this is specific to how we define positions exempt from overtime or subject to overtime.
The proposed changes, which hopefully folks have heard about though it may be new to some people, will cause the level of salary that would qualify for exempt status to go up quite a bit. And by “quite a bit,” we’re talking something like from something around $20,000 to $50,000 or $60,000.
Suzi: Almost double for the annual salary!
Brandon: What are they trying to accomplish by changing something like that?
Molly: Good question. I think it’s the sense that we have a bunch of people who are not subject to overtime right now that have a very low salary range that essentially means that they’re excluded from overtime. So essentially they’re not able to have a living wage. The movement behind this is to increase that.
We’ve had a lot of discussion with clients trying to get them ready for this. The proposed rule should be coming out sometime this month, but it’s been like the worst Christmas Eve, Easter Egg Hunt ever! They’ve said “Oh this is coming out, it’s coming out,” and then it’s been moved back and moved back. But we are hearing that it’s going to be coming out in the next month and it could be that at that point it’s open for discussion. We’re hearing that when those regulations are released, it’s a go, it’s going to happen.
Brandon: We all know that the government operates at lightning speed.
Molly: [Laughing] Right, exactly! So it could still be some time. But it’s interesting, and I wanted to loop the two of you in because from my perspective as an HR Business Partner we’ve been trying to prep our clients with this and having them look at where their exempt folks are landing salary wise. The response has been really interesting because a lot of our clients have said, “Yeah, that won’t happen, it would just kill our business. There’s no way we can continue in that model.” So I’m curious to get your takes on what a change like that would mean.
Brandon: Yeah, I think my initial reaction, and I’m not an HR person so you both will have a different perspective, but my initial reaction is that when you start getting the government involved in setting wage limits and wages–the way I look at price and wages is that there’s always a signal, it’s a signal for the amount of skilled labor that’s available at any given moment and for the supply and demand that’s available and when you get central planners involved in setting limits and wages, that poses a burden for employers. Even though this is a little different, when talking about exempt and non-exempt status, I still think you’re at risk. Employers could lose people, or they’ll have to eliminate some jobs. I think that’s the risk, is that you could impose a burden to employers.
Molly: Yes. You’re talking about basically bringing thirty years’ worth of wage increases in one fell swoop, which is what some of the statistics are pointing to. We would basically be looking at accounting for 30 years of inflation in one single act or change.
Suzi: You know, I was talking to a group of start-up business owners the other day, and of course most of them have independent contractors that are not necessarily meeting the criteria. Also, they’re not even necessarily focusing much on non-exempt and exempt.
Molly: They’re misclassifying unintentionally.
Suzi: Yes. It’s unintentional, they’re well-intended, but they’re really focused on growing their business more than their internal HR infrastructure at this point, as well as some of the compliance pieces.
I guess what I think about is that when they’re changing that salary for the salary test, and I also understand that for the white collar exemptions they’re going to be changing some of the duties test, specifically for the executive exemptions.
Molly: Mainly that you have to spend 50% of your time managing people, versus managing processes or actually doing the work yourself, which will be a huge game-changer for fast food service managers, who are usually working the line and overseeing their employees.
Suzi: Exactly. And most managers are working managers, so it’ll be interesting to see, in my opinion, how this is enforced. So it’s one thing to roll out these new changes, but I wonder what level of enforcement there’s going to be, because as a business owner, you’re always weighing risk and benefits when you’re making these decisions—especially for a start-up.
As an HR company, we’d advise you to do best practice and comply with it. But at the end of the day, when it comes to a practical application, I wonder how much employers are really going to sit down and do a complete overhaul audit. I think it’s something to look at now and be proactive about, just so you know what your exposure is, and then you can do that risk-benefit analysis and figure out, “Okay, if I have positions that are kind of on the bubble or questionable, what’s going to be my strategy for classifying and handling those?” But then again it will be interesting to see how with the 1099 and independent contractor, how they ramped up all the hiring of additional auditors and had the inner agency cooperation, if there’s going to be similar resources devoted to checking compliance.
Molly: My hope is that there would be a grace period. To Brandon’s point, we don’t have a system that turns on a dime. So the idea that we would have hundreds of thousands—that’s probably low, I’m not a math person, so don’t quote me on that—but thousands and thousands of people who suddenly wouldn’t qualify for an exempt status and would basically be subject to overtime. Xenium as a team has been recommending looking at job descriptions, making sure that they’ve very current to the actual job that’s being performed by the employees. In my personal experience, that’s prompted four of my clients to already advise the FLSA classification for some employees. So really, before the change, the job duties didn’t fit. They were having some folks who were working in an exempt function who were not exempt from overtime, just on the basis of not salary, but the job functions, the duties test Suzi mentioned earlier. I’m seeing even the discussion of it create some more alignment and awareness of where people need to land. It would still be seriously significant. I’m hoping it wouldn’t be like, “This goes into effect June 1st!”
Brandon: If you give people time, they can make incremental adjustments, versus if it all happened in one fell swoop, then people will have to make drastic decisions. That would be tough.
Molly: We work with a lot of non-profits, and there’s no intention other than providing the best possible living wage for an employee. But they’re also really working with budget constraints, like any employer is. So it’ll be an interesting discussion, and one to keep an eye on. And again, the frustration from the HR perspective are folks who are tracking this find that ever article says, “This will be coming out soon!” or “We’ll know soon, we’ll know this magic number, it’ll be released soon!” And that’s been going on for a year. So at some point we hope it’ll be released and then we can work with it.
Suzi: But I remember that was one thing that President Obama had tasked the Secretary of Labor with, and it was an issue that he wanted completed before he left office, so it will be interesting to see how quickly they get on it. And I guess the biggest risk for employers, the biggest area of exposure, is these class action type lawsuits. Again, how is this going to be enforced, and how informed are employees going to be? And when you have maybe some litigious employees or employees who aren’t exited in a graceful manner, is that going to trigger some more FLSA and wage and hour claims, which actually are on the rise.
Molly: Yes, agreed. There’s no question, it will be national news if this goes through. And we’ll keep you posted, we promise and commit to doing that. Thank you both for your input!