Tuesday May 31st, 2016
Just last week, On May 18, 2016, Secretary Perez and President Obama announced that the Department of Labor finalized drastic changes to the Fair Labor Standards Act (FLSA), which update overtime regulations. These new changes will go into effect on December 1, 2016, giving employers some time to update their processes for overtime and time tracking. The DOL expects that the modifications to the FLSA will extend new protections to 4.2 million workers across the United States, making many of these employees eligible for overtime pay.
The threshold for the standard salary level changes from $455 per week (or $23,660 per year) to $914 per week (or $47,476 per year). This means that employees earning less than the new threshold qualify to earn overtime pay when they work more than 40 hours in a week.
The change also increases the minimum salary for highly compensated employees from $100,000 to $134,004. (Note: a highly compensated employee is one whose pay is in the top 20 percent of compensation for the company, or one who is a five percent owner or more in the company.)The FLSA will now require companies to put into place a mechanism that automatically updates compensation levels for all exempt employees every three years.
Employers are permitted to use incentive payments and nondiscretionary bonuses to meet up to 10 percent of the modified salary level. These amounts include commissions.
An important point to remember is that for administrative, professional, and executive employees, the duties have not changed.
In order to prepare for the December 1 deadline, employers must start making changes to processes now and ensure compliance. What are the simplest ways to do this?
If an employer doesn’t monitor the hours an employee works, it will be difficult to know whether or not they are in compliance. An automated time and attendance tracking system makes this much easier, since it allows a supervisor to pull data at any time to see where the employee is in terms of meeting the threshold. If he or she is getting close to going into overtime, the company can monitor that and adjust schedules as needed.
If you have a highly compensated employee who is consistently going over the threshold, it may be time to implement a new strategy. For example, perhaps some of the workload could be transferred to an employee who has a lower number of hours for the week or who earns a lower pay rate. Consider hiring additional staff if your employees constantly have to work overtime to accomplish their tasks.
If you plan to raise employee’s salary to remain in compliance, use caution as other employees may wonder why their salaries aren’t shifting as well. Make sure to implement fair policies that won’t cause a major disruption.
The new thresholds apply to employees who are paid on salary, so it may benefit you to reclassify a specific employee to non-exempt and simply pay for the overtime hours worked as needed. Weigh the pros and cons of raising a salary versus reclassifying the employee’s exemption status.
This revised document has not yet been published in the Federal Register. This means that the Final Rule as printed in that register could have minor formatting differences as required by the Federal Register.
With these new changes to the FLSA, employers must act fast to meet the compliance deadline before the end of the year.