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.
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.
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.
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.
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Tara Wolckenhauer is DVP of Human Resources at ADP Small Business Services. Tara has proven success in driving strategic human resources and core business initiatives through effectively structured teams and consultative client relationships. She is a pragmatic and proven HR leader with innovative solutions that help drive business objectives. Prior to ADP, Tara was an HR executive at Express Scripts and, prior to that, at Medco Health. Tara is a frequent speaker and commentator and has recently appeared in The Wall Street Journal, Business Day Live and before the Association of Women’s Business Centers.