New Overtime Rules Are Coming. Are You Ready?

exempt no longer
New Overtime Rules Are Coming. Are You Ready?

Expected to be released as early as July, the Department of Labor’s (DOL) changes to overtime exemption rules of the Fair Labor Standards Act (FLSA) will impact millions of employees across the nation who will now be eligible for overtime pay. For employers, this will mean much higher labor costs and increased compliance efforts. The rules take effect only 60 days after release, so it is imperative that employers begin preparing now.

What is changing?
1. Many previously exempt employees will now be eligible for overtime pay.
The proposed changes include setting the standard salary level at the 40th percentile. This would mean adjusting the minimum weekly salary threshold from $455 per week ($23,660 annually) to an estimated $970 a week ($50,440 annually) in 2016.
2. More highly compensated employees will be eligible for overtime.
The proposed changes include setting the highly compensated employees (HCE) salary level at the 90th percentile, increasing the annual salary threshold from $100,000 to $122,148.
3. Salary and compensation levels will be updated annually.
The proposed changes will establish an automatic annual update of the salary and compensation levels. Therefore, as salaries rise across the nation, the thresholds will also increase.

Why is this changing?
The minimum salary has been updated periodically over the years since the FLSA was passed in 1938 with the most recent update taking place in 2004. However, it has been argued that these infrequent updates have not kept up with inflation and, thus, have failed to maintain the protections intended by the salary test.
How does this impact you as an employer? How can you prepare?
The final rules are expected to be published in July of this year and take effect 60 days after release (September 2016). Do not get caught by surprise.
The following tips will help businesses prepare for the changes to ensure compliance in the most cost-effective manner.

Review Your Current Employee Base
Depending on the types of employees you have, the impact will vary. As this change is likely to dramatically impact labor costs for many employers, a first step to prepare would be to conduct a review of your current labor costs, identify the number of employees who will be impacted and estimate the impact. Since there are no proposed changes to the job duties test at this time, you should be able to identify those who meet the job duties test but do not meet the minimum salary threshold (estimated to be $50,440 a year for 2016).

Review Job Descriptions and Salaries
With the threshold changing so dramatically, it would be wise to review all employees’ salaries and job descriptions in this new light. If in your review of your personnel, you identify currently exempt employees who are near the new threshold, for example, a salary raise to a level above the threshold may be more cost effective than keeping them at the current salary, plus overtime.

Things to Consider:
As a part of your evaluation process, you should consider:
• A communication plan for newly non-exempt employees
• New timekeeping systems and procedures
• Changing policies around time worked, including after-hours emails, phone calls, travel, training of newly non-exempt employees

Be Prepared
Change can be difficult and confusing, especially when it has the potential to impact so many. You will likely receive questions regarding why changes are impacting some but not all. For example, you may have workers with similar job titles and duties, but based on their salaries, one will now be eligible for overtime and the other will not. Additionally, employees who have not had to track their hours for many years may go through a bit of culture shock with the transition to non-exempt, so thorough training and communication will be key to preventing confusion or disruption. Conduct meetings with your leaders to prepare them to answer questions employees might have and establish the proper channels for answering questions.
Part of being prepared includes having the right systems and resources in place. Implementing timekeeping software is an efficient and effective solution to the increased compliance burden. However, because it can be time consuming and costly to integrate a timekeeping solution with your payroll and personnel systems, it may be faster and more cost effective to hire a third-party payroll provider with an electronic timekeeping solution.

Beyond the Initial Changes
Adding further complication to this is the annual adjustment portion of this rule change which will ensure that the minimum threshold is reviewed annually and adjusted as necessary, essentially making nearly all of the above steps necessary on an annual basis.

These overtime changes are just a few months away. Are you prepared?
When it comes to employment law and creation/execution of policies, it is important to follow the letter of the law. Failing to adjust to the rule change or misclassifying your employees in general could cost you as the employer thousands in penalties, fines and payment of back wages. Taking the time to prepare for these changes now and ensuring you are properly classifying your employees will help you avoid costly mistakes. Of course, always consult an attorney or human resources professional regarding any changes impacting your workplace or employment policies.

If you have any questions about the coming changes to the FLSA overtime rules, please do not hesitate to contact a Spirit HR professional at 405-951-5300 or