Over the last year, Spirit HR has worked to keep you updated on the Department of Labor’s upcoming changes to the Fair Labor Standards Act’s overtime regulations. With the release of the final rules in late May and the effective date fast approaching, it is now time for every employer to devise a plan to comply fully by the effective date of December 1, 2016. The provisions of the final rule will make an estimated 4+ million workers eligible for overtime in the first year alone, and if you are an employer whose workforce is impacted, you have less than 6 months to prepare.
The Department of Labor (DOL) stated, “This long-awaited update will result in a meaningful boost to many workers’ wallets, and will go a long way toward realizing President Obama’s commitment to ensuring every worker is compensated fairly for their hard work.” Unfortunately, to accomplish this goal, many employers will have to make significant changes and find a way to shoulder potentially significant labor cost increases.
What is changing?
- Many previously exempt employees will now be eligible for overtime pay.
The minimum weekly salary threshold will increase from $455 per week ($23,660 annually) to $913 a week ($47,476 annually) in 2016.
- More highly compensated employees (HCE) will be eligible for overtime.
The threshold for highly compensated employees (HCE) will increase from $100,000 to $134,004 in 2016.
- Salary thresholds will be updated every three years.
Salary and compensation levels will be updated every three years with the first update effective on January 1, 2020. An automatic update of the salary and compensation levels is intended to keep the thresholds from becoming out of date.
- Bonuses will be allowed to be factored into the standard salary level.
An amendment to the salary basis test will allow employers to use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.
Why are these changes being made?
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 to be ready by December 1st?
The following tips will help businesses prepare for the changes to ensure compliance in the most cost-effective manner:
TIP: Review Your Current Employee Base
Depending on the types of employees you have, the impact will vary. As this change will 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 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 ($47,476 a year effective December 1, 2016).
TIP: 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
TIP: Start Preparing Now
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, resulting in a feeling of loss of status or flexibility as a result of the necessary timekeeping changes, 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. Contact us to learn more about Spirit HR’s timekeeping solutions.
Beyond the Initial Changes
Adding further complication to this is the automatic adjustment portion of this rule change which will ensure that the salary threshold is adjusted as necessary every three years. This means a review of salaries and exempt/non-exempt status will be required every three years with the next adjustment in 2020.
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 or would like Spirit’s help in preparing for these changes, please do not hesitate to contact a Spirit HR professional at 405-951-5300 or firstname.lastname@example.org.
Photo Source: Department of Labor https://www.dol.gov/WHD/overtime/final2016/