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Let’s start by quickly reviewing the most significant changes that are upcoming from the Fair Labor Standards Act (FLSA) courtesy of the Department of Labor.
What changes do you have to comply with by December 1, 2016?
The minimum salary needed to preserve most exemptions (in addition to meeting the proper duties test) will rise from $23,660 to $47,476 per year which is actually lower than expected, based on the proposed regulation.
Workers who earn up to $47,476 a year ($913 a week) will have to be paid overtime, even if they're classified as a manager or professional.
The minimum salary needed to preserve the Highly Compensated Employee (HCE) exemption will rise from $100,000 to $134,004 per year.
The minimum salary will reset every three years, starting on January 1, 2020. The new minimum will be announced 150 days in advance (on August 1,2019 for the January 2020 increase). Based on current projections, the salary threshold is expected to rise to more than $51,000 with its first update.
WHAT ARE MY OPTIONS?
You have a few options for responding to the changes to the salary level. Employers can choose the one that works best for them. Options include:
Evaluate and realign hours and staff assignment:You can ensure that workload distribution, time and staffing levels are all managed appropriately for their white-collar workers who earn below the salary threshold. One way to accomplish this would be to hire additional workers.
Consider raising the employee’s salary to keep the employee exempt from overtime:You may choose to raise the salaries of employees to at or above the salary level to maintain their exempt status. You need to review first if those employees still meet the duties test (that is, the duties are truly those of an executive, administrative or professional employee). This would be a perfect option for any employees that have a salary close to the new salary level and regularly work overtime.
Pay overtime in addition to the employee’s current salary when necessary:You could also continue to pay your newly overtime-eligible employees the same salary, and pay them overtime whenever they work more than 40 hours in a week. This approach works for employees who work 40 hours or fewer in a typical workweek, but have occasional spikes that require overtime for which employers can plan and budget the extra pay during those periods. Remember that there is no requirement to convert employees from salaried to hourly in order to calculate their overtime pay! How?
This is how! If you have a fixed salary for a regular workweek longer than 40 hours, this does not discharge FLSA statutory obligations.
For example, an employee may be hired to work a 45-hour workweek for a weekly salary of $405. In this instance the regular rate is obtained by dividing the $405 straight-time salary by 45 hours, resulting in a regular rate of $9.00. The employee is then due additional overtime computed by multiplying the 5 overtime hours by one-half the regular rate of pay ($4.50 x 5 = $22.50).
WHAT DO I TELL MY EMPLOYEES?
If you feel like your workforce is experiencing general unrest or confusion regarding the FLSA changes, you may consider a general memo that would go out to all employees communicating information regarding the changes. Some templates are available on the www.shrm.org website.
In addition, well before the change is effective, you should be communicating with all those employees that will be impacted. Reclassified workers will—perhaps for the first time in their careers—have to track their start times, end times, break times and meal times which may be a huge impact to them and their positive outlook. One way to soften the blow is to point out that previously exempt workers will now be paid for after-hours work.
Also assure that your managers are trained and can answer their employee’s questions regarding the changes. They will be the ones that need to clear up confusion about the hours that reclassified employees should and shouldn’t work.
NEVER LET A CRISIS GO TO WASTE!
If you were even contemplating making changes to your salary structure, job functions and descriptions, etc., do not waste this perfect time to reevaluate your entire staffing structure! Here are some basic steps to take to evaluate your current situation and determine how you can assure that your organization is prepared for the overtime changes by December 1, 2016.
Employers should consider the following actions:
1.Conduct a gap analysis to determine what exempt employees fall below the new standard:
a.Make sure that you identify all employees – not just positions – that are effected.
b.Fully consider the “ripple effect” on any employees in the upstream and cross-stream of those employees.
c.Double check the duties gap as well to determine if you have some jobs that are paid as exempt but may not really perform the duties of exempt role according to the FLSA Duties tests.
2.Find a reliable way to determine the working hours of the employees that may need to be reclassified so that you can fully anticipate cost. May include a survey of supervisors, records that may suggest hours worked, etc.
3.Assure that you have a means of accurate time-keeping for all non-exempt employees even if no overtime is worked.
4.As you work through the restructure plan, here are some further items to consider:
a.To justify increasing exempt salaries to the new threshold, some jobs will need to take on more responsibilities.
b.You may need to shed some non-exempt responsibilities for those that you plan to keep exempt.
c.Some jobs may need to be split into two or more positions to lower your overtime costs. d.There may be some positions that you may need to eliminate.
WHAT IS MY RISK FOR NOT COMPLYING?
As you can see below, the FLSA cases have been steadily increasing year after year from just 1,935 cases in 2000 to over 8,700 cases in 2015.
The FLSA authorizes the Wage and Hour Division to assess employer’s civil money penalties (CMPs) of up to $1,100 for each violation for repeated or willful violations of the minimum wage and overtime requirements of the Act. An employer may be assessed for a "repeated" violation when it can be proven that the employer had previously violated the minimum wage or overtime requirements of the FLSA. Each employee that is out of compliance could be treated as a “violation”.
Please keep in mind that under the Fair Labor Standards Act, "any employer" who violates minimum wage or unpaid overtime compensation laws may be liable for both the shortfall and liquidated damages, which means double the damages. The FLSA definition of "employer" can be very broad. Along with supervisors and high-ranking executives, it can also include officers and directors.
As you can see, the result of non-compliance could be a huge hit to your organization’s bottom line and employee morale.
References:
https://www.dol.gov/whd/overtime/final2016/
https://www.shrm.org
Full Regulation: https://www.dol.gov/sites/default/files/overtime-overview.pdf