Changes Ahead for White Collar Employees

On December 1, 2016, 51% of the salaried workforce could be receiving overtime pay for the first time, a pay raise, a new team member, or a pay cut.

Back in 2014, President Obama signed a Presidential Memorandum directing the Department of Labor to update the regulations defining which white collar workers are protected by the Fair Labor Standards Act (FLSA)'s minimum wage and overtime standards. In 2015, the Department of Labor submitted a draft to the Office of Management and Budget for approval, the draft was approved, and the comment period began. Numerous organizations, workers unions, employers, and employees left over 270,000 comments on the proposed change. On May 18, 2016, the President and Secretary announced the publication of the Final Rule.

So what does this all mean? In the most basic terms, the current salary range for non-exempt employees is $23,600 or less. Non-exempt employees are entitled to overtime pay at the rate of time and one-half pay for each hour worked over forty hours within seven consecutive days. The current salary range for exempt employees is $23,600 or higher, and exempt employees are not entitled to overtime pay.

On December 1, this new rule will raise the non-exempt salary cap range to $47,476 or less. Meaning, employees making up to $47,476 a year will now be entitled to overtime pay. This change will affect 4.86 million workers nationally and 120,000 workers in Tennessee. There is no doubt this change is going to happen, but the question remains: what will these changes look like for nonprofit employers and their employees?

Nonprofit employees would think this sounds great, right? Individuals in the $23,600 and $47,476 range are considered "white collar" workers. Most of these workers have an education level of some college or a bachelor’s degree, and complete tasks in an office, cubicle, or administrative setting. These employees should be paid fairly for their time, considering many of the individuals in this range work for nonprofit organizations requiring extra hours outside of the 40-hour work week.

But because these changes are going into effect in December, in the middle of the fiscal year for many nonprofits, employers may not be able to easily adjust funds to appropriately handle this change affecting their staff. You might think, “It shouldn’t matter because the employees’ salaries are not changed.” Well, we must take into account the current situation between the affected employees and employers. To continue providing consistent services, employers will have to make one or more of these choices:

  • Pay each employee overtime for each hour worked over 40 within seven consecutive days
  • Give the employee a raise to avoid paying overtime
  • Hire part-time employees to make up for time lost
  • Lower the base hourly pay to offset any overtime pay (assuming the employee works overtime each week)

Regardless, employers across the nation will now be required to carefully track work time and create budgets with more flexibility.

I think many individuals would agree raising the non-exempt salary cap is beneficial for millions of employees across the nation. Work-life balance is important for mental, physical, and emotional health of the employee, and overtime hours should be compensated appropriately. However, if the salary change is not implemented correctly, then the change could potentially harm employees, employers, organizations, and the community served.

To learn more about how to best implement the Department of Labor’s changes in overtime rule, we invite our nonprofit members’ executive directors and HR staff to attend our next executive director affinity group meeting. On Thursday, August 11 from 8-9:30 a.m., ABN Expert Jennifer Rittenhouse will give us guidance on paying overtime under the new FLSA regulations, white collar exemptions, and compliance options for nonprofit employers. The cost is $10 per person for breakfast. Register here.