6 Critical Steps to Complying with the New FLSA Overtime Rule by 12/1/2016
When the Department of Labor issued the new overtime rule on May 17, 2016, you could almost hear a collective cry from employers across the U.S. What does it mean? How will the FLSA Overtime Rule affect our business? What do we have to do? These are all legitimate questions, especially as the December 1 deadline looms large. You must take certain steps now to ensure you properly classify employees as exempt or non-exempt from overtime – and to keep your business running as smoothly as possible through the changes.
Over the next three months, you should:
1) Identify affected employees –
The minimum salary for exempt employees will jump from $455/week ($23,360/year) to $913/week ($47,476/year). As a good starting point, consider all salaried employees earning less than $50,000, keeping in mind the FLSA salary threshold will increase in three years to more than $51,000.
2) Gather information on affected employees –
You’ll need to confirm actual job responsibilities, which tie into the criteria for the various FLSA exemptions. To do this, engage your supervisors and managers, as well as interview employees to learn more. Remember: In addition to the new salary requirement, all exempt employees must meet the job duties test! The job position title or description isn’t always a clear indicator, especially if responsibilities have evolved over time.
3) Determine the average hours worked per week and overtime pay rules –
The big question here is how much overtime – or time exceeding 40 hours a week – is typically worked to get the job done. You might need to check with the direct supervisor to get this number. Consider all hours worked, including at-home work, travel, on-call work and time spent outside of work checking emails or communicating from a cell phone.
4) Make an FLSA classification decision –
After an internal evaluation, you basically have two options: increase salaries to keep affected employees exempt, which frees you from having to calculate and pay overtime, or reclassify these employees as non-exempt and convert their salaries to an hourly rate.
“Keep exempt” factors
• For employees close to the salary threshold, it may be best to increase the salary to satisfy the exemption
• Compare the cost of estimated overtime to the cost of increasing salary
• Make sure the employee meets the job duties test
• Adjust responsibilities if needed and update job descriptions
• Consider formal promotions
“Change to non-exempt” factors
When converting salary to an hourly rate, you can:
• Base it on a 40-hour week and prohibit overtime to maintain payroll costs
• Base it on a 40-hour week and pay 1.5 times the regular hourly rate for any overtime worked, but institute a strict overtime approval policy to control payroll costs
• Make it a reduced hourly rate by dividing the salary by more than 40 hours a week (ensuring the hourly rate meets minimum wage requirements under federal, state and local laws) and pay 1.5 times the regular hourly rate for any overtime worked
5) Weigh your staffing options –
If you’ve decided to restrict overtime with newly non-exempt employees, you’ll want to explore alternative arrangements to get the work done and maintain productivity. Do certain salaried employees have the capacity to take on more – or can tasks be shifted to other teams or departments? Job restructuring is another option. Perhaps duties can be eliminated or redistributed, certain employees can be promoted or you can create levels within job categories. Also, can overtime work be absorbed by temps or part-timers at a lower hourly rate?
6) Address administrative factors with newly non-exempt employees –
For any employees you’ve switched to non-exempt status, you’ll need to record the payroll status change, review any state/local notification requirements, update job descriptions, if necessary, and implement (or upgrade) your timekeeping system to track all hours worked. Look at your current company policies and benefit plans, as well. Are exempt and non-exempt employees treated differently? How will reclassified employees be affected?
Be sure to arrange training for newly non-exempt employees – along with their supervisors or managers – on proper recordkeeping and time-tracking procedures. As a best practice, it’s also smart to distribute a written policy to both groups and require signatures.
Get expert help
ComplyRight has employer-friendly product solutions – a forms & tools kit and an e-solution – to simplify how you communicate and handle these changes. Click the link to learn more about these FLSA forms and compliance solutions so you’ll have all the tools you need to comply with the new overtime changes by the deadline. For employers that may need to reclassify employees to comply with the 2016 overtime changes, you may want to look at their FLSA software product to help you base those decisions on sound calculations… instead of guessing.
Here is an excellent video on the FLSA changes that went into effect in 2016.
Another video on FLSA Lawsuits and Compliance is shown below.