UPDATE 10/01/16: The House approved a six-month delay in overtime rule implementation, trying to defer legislation that would have gone into effect on Dec. 1. The Republican-backed Regulatory Relief for Small Businesses, Schools and Nonprofits Act, or HR 6094, would postpone the implementation of new Department of Labor rules that would shift the threshold for determining overtime pay until June 1, 2017.
As many of you have heard from us at Servant HR and other sources for months, the Obama Administration has finally come down with new regulations that establish a new wage minimum for your salaried/exempt employees. Employers must be in compliance by December 1, 2016 so if you haven’t already analyzed your situation, now is the time. The odds of this being overturned are virtually non-existent regardless of the 2016 election outcome.
Snapshot of the New Regulations
These regulations update the minimum salary level required for an employee to qualify under any of the common exemptions. Currently, that salary level stands at $23,660 per year ($455 per week). The new regulations raise the minimum salary level to $47,476 ($913 per week).
What This Means to Employers and Employees
As an employer, if you have employees who are classified as exempt under the current FLSA regulations “duties test” but who make less than the new wage base, you will need to make some changes. Employers essentially have three choices to be in compliance with the new regulations:
- Keep the employee’s exemption status intact by increasing the employee’s pay to at or above the new minimum threshold
- Change the employee’s exemption status to salary/nonexempt, and while still paying a salary, begin paying overtime for all hours worked over 40 hours in a given workweek
- Change the employee’s exemption status to hourly/nonexempt, and only pay for hours worked and begin paying overtime for all hours worked over 40 hours in a given workweek
How to Prepare for the Upcoming Changes
These changes require a lot of planning on the part of all affected employers. Here are some ways to get prepared for the coming regulations changes:
- Confirm employees currently treated as exempt truly meet the “duties test” to establish a list of affected employees
- Which FLSA Exemption applies?
- Is there a Department of Labor Fact Sheet that can support your decision?
- Analyze affected employees.
- Which employees currently are classified as exempt under the duties test, but have salaries below the new threshold?
- Gather all relevant data points, such as:
- How many hours per week do these employees currently work?
- How much overtime would need to be paid if the employee changed status to nonexempt? How much would that cost?
- How much would it cost to increase salary levels to meet the new thresholds?
- Will there be a need to hire additional staff (perhaps in lieu of paying overtime)?
- Are there systems in place now to accurately calculate hours worked (including all overtime) for all affected employees? If no, what would it cost to put such systems in place?
- If salaries are increased, what impact will this have on the overall organizational salary structure? Will salary bands need updating? Will upper levels in the organizational hierarchy also need pay increases to stay in alignment with their relative level within the organization?
- Put together a clear process for decision making.
- Reach agreement on what changes must be made.
- Establish consensus on timing of changes.
- Plan for the transition process
- Determine exactly what changes will be needed within the payroll system to either change these employees to nonexempt (and pay overtime) or change their salary levels. Create a plan to accomplish either task, depending on which is chosen for a given individual.
- If any employees will be moving to nonexempt status, create systems for time tracking and create training on how to use those systems and to keep them accurate.
- Consider whether updates will be needed to your overtime policy and start drafting these now.
- Start making assessments for individuals and groups to determine the best course of action.
- Consider to also take this opportunity to do a job analysis and update job descriptions accordingly to reflect the true duties of the job. This will allow a more accurate comparison against the guidelines in the future.
- Create a systemic process for review of employee exemption status to ensure that employees are always classified correctly going forward, especially since the salary basis will undoubtedly be changing periodically in the future—employee salaries will need to comply to keep the exemption in place.
- Communicate, communicate, communicate to minimize the disruption these changes may cause.
How prepared is your organization for these coming changes?
This article does not constitute legal advice. Always consult legal counsel with specific questions.
