It's been a strange few months. As we told you in July, FLSA changes are on their way. But these changes seem to be, well, changing. Here are the latest updates, on both the rule and various attempts to thwart it.
As of now, the rule changes outlined below are set to go into effect on December 1, 2016. This is despite the following.
- The House of Representatives passed a bill on September 28, 2016 that would delay FLSA changes for six months. However, H.R. 6094 is unlikely to be signed into law before December 1, if ever.
- On September 20, 2016, 21 states filed a lawsuit, joining the Chamber of Commerce, the National Federation of Independent Business, the National Retail Federation and other business groups, alleging the changes are unconstitutional. According to the Society for Human Resource Management, however, these lawsuits are unlikely to move forward.
So - what's an employer to do? The experts agree - prepare for the FLSA changes as if they are indeed going into effect December 1.
What Is It?
As mentioned above, the Department of Labor (DOL) recently unveiled the newest addition to the Fair Labor Standards Act. With the new rule, the DOL raises the minimum salary threshold for overtime exempt workers within companies with over $500,000 in annual revenue. The two main types of salaries are:
- Exempt from overtime (these employees don't qualify for overtime)
- Non-exempt from overtime (these employees do qualify for overtime)
Although many employees believe they belong to the first group, salary exempt, a lot fall under the salary non-exempt category. This is usually because they do not fall under the true definition of a manager (see the What It Boils Down To section below).
With the FLSA rule changes, the minimum salary for exempt workers nearly doubled.
Old rule: Any salary under $23,660 per year ($455/week) qualifies for overtime
New rule: Any salary under $47,476 per year ($913/week) qualifies for overtime
This qualifies millions more American workers for overtime and is a major change for employers to contend with.
What It Boils Down To:
Now that employers of all types of businesses have more employees that qualify for overtime pay, they must face a decision - continue to pay an hourly wage with overtime or increase salary pay to meet the threshold.
Paying the Big Salary:
The new rule mandates that an employee making at least $47,476 per year can be exempt from overtime pay. Additionally, these employees must be classified as executive, administrative, professional, computer or outside sales. According to the Department of Labor, the executive, or managerial, exemption (often considered the most confusing) requires that the employee:
- Must manage at least two or more other full-time employees or their equivalent
- Must be primarily involved in managing the business
- Must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight
Another category of exemption is that of the Highly Compensated Employee (HCE). Highly compensated employees performing office or non-manual work are exempt if they regularly perform at least one of the duties of an exempt executive (managerial), administrative or professional employee as mentioned above. What salary defines an HCE? Before the new rule, anyone earning $100,000 or more could qualify as an HCE. As of December 1, this will increase to $134,004.
And a clarification - under the new rule, employers will be able to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level.
If employers decide not to raise an employee’s salary to $47,476 per year, that employee, whether receiving salaried or hourly pay, will be eligible for overtime. At first glance, paying overtime may seem simple. However, the employer must take then take extra steps to comply with the new rule, including:
- track managers’ clocking in and out down to the minute in order to properly pay overtime when overtime is earned
- track other employees hours so they aren't going over budget on overtime
- implement a payroll system to track and deliver overtime payments
How to Survive:
The new FLSA law will become reality in December 2016. Now is the time for the 11 million employers affected by this new rule to make a decision: pay the overtime or immediately bump up administrative, executive, professional or outside sales salaries to $47,476. While each side has positives and negatives, one thing needs to remain constant: the employer’s organization of their employees’ hours.
And a note - according to the Department of Labor, "an employer must establish a workweek (7 consecutive 24-hour periods) and must pay overtime when hours worked exceed 40 in the workweek. The practice of paying overtime only after 80 hours in a bi-weekly pay period is illegal since each workweek must stand alone." So if an employee works 38 hours one week and 42 hours the next, they are eligible for two hours of overtime, even though 38+42=80.
To better organize your employees hours:
1. Evaluate your own business: incorporate new rules into your current practices in the most efficient way possible
- Do you have employees that were exempt from overtime that might not be anymore?
- Do you or your employees rely on overtime hours to get the job done? How productive/valuable are these hours?
2. Hire new employees: These employees (even if they're part-time) may help ease the overtime hours worked by managers and paid by the employer.
3. Manage overtime hours: Keep accurate records of overtime hours worked by those employees not bumped up to $47,476 to ensure:
- Real-time reporting with a proper timekeeping system
- Tracking and assessing overtime hours worked by the employees to keep the hours as low as possible
4. Ask for help if you need it.