Every year small and mid-sized business owners are faced with changing regulations and often need to make fundamental changes in how their organizations operate to remain in compliance. A chief concern in 2016? The Department of Labor’s (DOL) proposed overtime mandates.
Last June the DOL released proposed changes to the regulations issued under the Fair Labor Standards Act (FLSA), recommending an increase to the salary level for both “white collar” and “highly compensated employee” exemptions. For “white collar” (executive, administrative and professional) employees, the proposed rules aim to increase the salary level from the current minimum of $455 per week to the 40th percentile of earnings for full-time salaried workers – which the DOL anticipates would equate to $970 per week, or $50,440 annually.
With respect to the “highly compensated employee” exemption, the DOL proposes increasing the new annual compensation level to the 90th percentile of all full-time salaried workers’ annual wages – a shift from the current annual compensation level of $100,000 to $122,148. Additionally, the DOL is considering whether to permit non-discretionary bonuses and incentive payments to count toward a portion of the standard salary level basis.
Finally, the proposed rule would establish mechanisms to update the salary levels on an annual basis.
Release of the final rule is expected as early as July 2016. The DOL estimates that these proposed changes would lead to five million currently exempt workers immediately becoming overtime eligible, unless their salaries are increased above the minimum threshold. It’s critical that employers prepare for the rule change now by adopting the use of internal time and labor management tools or determining if they need to make changes to their employees’ compensation. Proactively assessing which changes need to be made and how they should be applied will help ensure your business is compliant once the final rule takes effect. Here are some actions that small and mid-sized business owners can take as they begin planning for final rule requirements:
Understand the proposed rule, current FLSA exemptions and if your business already complies. Before taking any action, ensure that you have a complete understanding of the proposed mandates and your employees’ FLSA exempt vs. non-exempt status.
- First, understand that, under the currently proposed rule, any employees who earn more than the threshold amount of $50,440 may be exempt from overtime pay if their primary job duties include those described in the “white collar” exemptions.
- Second, if the final rules are passed in their current form, employees whose salaries don’t meet the $50,400 threshold will be considered overtime eligible once the final rule is made effective.
- Finally, use the proposed rules to determine the number of exempt employees who will become overtime eligible, the number of overtime hours they currently work and the cost of either reclassifying as non-exempt or raising their salaries to meet the threshold.
Determine what is right for your employees and your business. Once you understand the proposed overtime changes and how your company’s current pay structure is affected by it, decide whether an hourly wage pay structure or a salaried pay structure makes the most sense.
- Employees who consistently work over 40 hours per week, perform exempt duties and make at least $50,440 should be classified as exempt. To avoid significant salary increases, consider reclassifying exempt employees who are not working over 40 hours per week and who make significantly less than the $50,440 threshold.
- Keep in mind that businesses with employees who are paid hourly will need to proactively monitor each employee’s work hours to ensure they accurately are paid for any work exceeding 40 hours per week in accordance with FLSA overtime requirements.
- Also, consider how any changes might impact deductions, time off and other aspects of employment; ensure you communicate any changes in advance to employees; and consider how changes might be perceived.
Implement systems to accurately track your employees’ working hours. Learn more about the tools and resources available to you so that can better manage your staffing decisions and remain compliant with the proposed rule.
- It’s important to keep in mind long-term goals and consider automated technology as a way to control labor costs. For example, implementing an automated time and attendance system that continuously tracks hours worked can be a simple way to help ensure you’re in compliance and accurately paying employees for the hours they have worked.
Ultimately, the most important thing small and mid-sized business owners can do to ensure they’re in compliance when the final rule is released later this year is to learn as much as possible about the proposed changes now and understand how the changes can impact their business. Small and mid-sized business owners should evaluate their organizations to better understand which employees may be affected and the potential financial impact of the changes, determine if changes to their pay structure are needed and consider implementing time-and-labor tools to assist with monitoring employee hours. While many updates can be made with no outside help, some businesses may also want to seek help from HR and employment law experts as they navigate the complexity of the proposed changes.Corporate Compliance Insights is a wholly owned subsidiary of Conselium Executive Search, the global leader in compliance search.