On May 18, 2016, President Obama announced that the Department of Labor had finalized major changes to the Fair Labor Standards Act (FLSA), which also modifies regulations around overtime. These new overtime requirements are slated to go into effect on December 1, 2016.
This provides a little breathing room for employers, but the new overtime requirements require many companies to implement some significant changes to their pay scales, time tracking and overtime processes. These changes will take time to fully analyze, develop an appropriate game plan and implement new procedures well before the deadline.
These modifications to the FLSA are expected to extend new protections to over 4 million workers across the country because it qualifies them for overtime pay. This will impact virtually all types of businesses, but hardest hit will be those in middle management, especially in the retail, hospitality and non-profits industries, where managers routinely work in excess of 40 hours per week.
The standard salary level threshold changes from $455 per week (or $23,660 per year) to $913 per week (or $47,476 per year). In other words, any employee who earns less than the new threshold will qualify to earn overtime pay when he or she works over 40 hours in one week.
As part of the new overtime requirements, the regulations significantly raise the salary threshold 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). It is estimated the the law will impact 36,000 people.
All companies must put a mechanism in place that will automatically update the current compensation levels for all exempt employees once every three years.
Employers may use non-discretionary bonuses and incentive payments towards these salary thresholds – but only to a point — up to 10 percent of the modified salary level, including commissions. And these cannot be provided at the end of the year. They must be paid on a quarterly or more frequent basis.
The Professional, Executive, and Administrative duties test did not change with the new overtime requirements and remains intact. However, with a higher salary level and the existing duties test, more employees will now be eligible for overtime.
While the December 1, 2016 deadline might seem far off, it is crucial for companies to begin now in making modifications to their processes and policies that will keep them in compliance.
Employees below or near the new threshold could end up costing the organization a lot of extra money in overtime pay. Look into options such as raising them above the new salary threshold, setting a policy prohibiting more than a 40 hour work week or transferring some tasks to a staff member who earns a lower hourly rate. It might even make sense to bring on new hires to lessen the burden on current employees.
In some organizations, employees simply show up and work, then leave for the day without tracking how much they work. As a result, employers won’t have any idea whether the company is complying with the new regulations.
Start now to implement an accurate time tracking and attendance system, even for salaried employees. This allows supervisors to track hours and be aware of when an employee must be paid for overtime work.
Note that you will now need to pay closer attention to out-of-office work time, such as employees reading and responding to emails at night or on weekends, as that time will count towards work time and possibly trigger overtime. You may need to develop new policies that prohibit out of office “work”, but this will require better monitoring and enforcement.
Because these changes to the FLSA laws apply to exempt employees, it may make sense to reclassify employees as non-exempt to eliminate the risk. You can also raise an employee’s salary to put him or her above the threshold, but be cautious to maintain fairness.
In order to prevent the risk of being out of compliance, employers should start reviewing and implementing new policies now.
MassPay is in a unique position to assist companies with navigating the new overtime requirements, and developing the appropriate strategies and communications to reduce these additional costs to the business.
Beyond the pay impact, there will be other issues created by the new overtime requirements, including potential loss of productivity, greater employee dissatisfaction and higher turnover levels. MassPay can help you with these areas too.
Our ASO services provide businesses with expert guidance on HR/Payroll issues, provides management and employee training and coaching, helps businesses develop company policies, performs compliance audits and addresses compliance issues, and implements best practices for recruiting, on-boarding, retention, training and workforce performance.
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