SHRM: Rhode Island Bill Would Raise Exempt Salary Threshold Too High

State lawmakers wanted a $53,872 minimum annual salary for overtime-exempt employees

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Proposed legislation in Rhode Island would boost the state's salary threshold for exemption from overtime pay to one of the highest levels in the country. If enacted, this change would hurt businesses and workers in the state, according to Cindy Butler, president of Butler & Associates Human Resources Consulting in Jamestown, R.I.

H.B. 5596 would increase the state's minimum exempt salary for executive, administrative and professional employees from $200 to $1,036 per week ($53,872 a year). This amount exceeds the now-blocked federal overtime rule, which would have raised the threshold nationwide to $913 per week ($47,476 a year). As it stands, the current federal threshold is $455 per week ($23,660 a year).

If the Rhode Island bill becomes law, exempt employees in the state with salaries below the new threshold would have to receive raises or be changed to nonexempt status and paid time-and-a-half for hours worked beyond 40 a week.

[SHRM members-only toolkit: Calculating Overtime Pay in the United States]

The new law would take effect as soon as possible after passage, according to the bill.

Although it's time to update the salary threshold for exempt employees, the proposed increases at both the federal and state levels are too high and would present significant challenges for many Rhode Island employers and employees, Butler said in a statement submitted to the Rhode Island House of Representatives Labor Committee on behalf of the state chapter of the Society for Human Resource Management (SHRM).

Negative Impact

The legislation was introduced by Sen. Jeanine Calkin (D-Warwick) and Rep. Susan Donovan (D-Bristol) in their respective chambers of the state general assembly. "The intent of this bill is to help prevent abuse of the overtime law," Calkin said in a press statement.  

She added that many salaried employees work excessive overtime hours that go unpaid, which means they effectively receive lower hourly rates than they would if they were nonexempt and entitled to overtime premiums. The increase would let more lower-income salaried workers be eligible for overtime pay, she said.

But lawmakers shouldn't ignore the downside to such a large increase. If enacted, the bill would hurt Rhode Island's economy, Butler told SHRM Online. Rhode Island is a small state that must remain competitive in New England, and the proposed salary threshold would be higher than it is in all neighboring states, she said.

Butler also expressed concerns about how the proposed change would affect nonprofit organizations. Unlike some for-profit businesses that can potentially raise prices for goods and services, many nonprofits have limited funds and must pay salaries from the grant money they receive.

Furthermore, currently exempt employees are more likely to be reclassified to nonexempt status than given raises to meet the new threshold, she said, which means their hours would be tracked and their overtime work might be limited.

This could negatively impact employee morale by reducing workplace flexibility and access to opportunities to gain needed experience, Butler said in her written testimony. Reclassified employees may also feel like they have lost their professional status, she added.

"The restriction in flexibility is one reason why many employees view reclassification as akin to a demotion, causing a decline in morale," she said. "Being classified as exempt promotes a sense of responsibility and ownership in the company as well as the ability to control when and where work gets done."

Automatic Increases Opposed

The Rhode Island bill calls for automatic increases to the exempt salary threshold to account for inflation—a provision the state SHRM chapter also opposes.

Beginning on Jan. 1, 2020, the threshold would be updated annually to reflect at least the 40th percentile of salaries earned by full-time, exempt workers in the Northeast Census Region during the second quarter of the previous year.

"After several years of mandated salary level increases, the gap in pay between more senior and less senior, more experienced and less experienced, or more productive and less productive employees will become smaller over time, creating significant morale problems and other management challenges," Butler said.

 

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