New FLSA Regulations Frightening? Not so scary when preparing in advance…..

By Raeann Hofkin, CPP - October 2019

Recently, the U.S. Department of Labor approved a rule updating who is exempt under the Fair Labor Standards Act (FLSA).  This change will extend overtime protections to more than 1 million currently exempt workers making less than $35,568 annually. Do you know how many of your employees will be affected? The new rule goes into effect Jan. 1, 2020.  

What’s changing?

On Sept. 24, 2019, the U.S. Department of Labor (DOL) released its final rule. This rule increases the salary threshold at which workers are eligible to receive overtime. This extends overtime protections to current exempt workers making less than $684 per week (or $35,568 per year) and over 100,000 highly compensated employees making less than $2,066 per week (or $107,432 per year).

Overview

Employers must satisfy three requirements before an employee can be considered exempt, and be excluded from minimum wage, overtime regulations and other rights and protections afforded to nonexempt workers.

 1       The first requirement is the “salary-level” test or threshold. To be considered exempt, an employee must be compensated at a rate that meets or exceeds the new rate of $684 per week or $35,568 per year. 

2       The employer must pay employees their FULL salary in any week they perform work, regardless of the quality or quantity of work.

3       The employee’s primary job duties (not title) must meet certain criteria. - https://www.dol.gov/whd/overtime/fs17a_overview.pdf

Start preparing now         

This increase in the salary-level threshold could create budgetary challenges by increasing labor costs.  Here’s how to evaluate your workforce and make informed decisions in order to mitigate labor costs and exposure under the new FLSA regulations.

1.     Review job descriptions. For now, create an Excel report showing employees that are making less than $35,568 per year. Include their name, title, hourly rate, and salary. Then review or create their job descriptions. Be sure to verify the job description with the employee as the DOL will interview the employees if there is an audit, not just read job descriptions. 

2.     Analyze the list. Notice that these three employees are hoovering just under the threshold that will require overtime to be paid. After reviewing their job description, determine if the position is truly an exempt position. Title does NOT dictate if an employee is exempt from overtime. 

a.     Jason Vorhees is $1.00 under the minimum yearly salary. If you don’t bump him up at least a dollar, he will qualify for overtime under the new rules.

b.     Freddie Kruger is $568 under the minimum yearly salary. Is he really a supervisor? Does he have staff that report to him? Is he really exempt? If so, it may be worth it to bump his salary to the minimum and avoid paying overtime that could possible total more than $568 for the year.

c.      Michael Myers may not be exempt and therefore was always eligible for overtime and will continue to be eligible.

Basically, for those who make less than the minimum requirement, consider whether it makes sense to raise these employees’ pay or the budget for potential additional overtime expenses. Also make any necessary organizational changes for exempt and nonexempt employees with similar job titles and duties. If there are company policies that once applied only to exempt positions, you may also need to amend those to now include nonexempt positions. 

Please note: When determining salary, remember to include quarterly (or more frequent) nondiscretionary bonuses and incentive payments, including commissions, up to 10 percent of the standard salary level. It is important to consult with legal counsel to ensure compliance with the new FLSA regulations and how the new rule impacts the bonus structure in place.

Communicate the changes to employees

Any changes to an employee’s salary should be communicated. For example, there may be confusion if the employee never had to complete a timesheet in the past. Notifying a previously salaried employee that he/she does not qualify, under the new rules, to be exempt from overtime, may feel like a demotion. Avoid disgruntles employees and make sure they understand that this change is happening merely to remain compliant with the law.  

Notify and train your management team. A transition like this may spark uncomfortable conversations. Give managers the information they need to have successful conversations with their direct reports. Explain what is happening, why it’s happening, and what it means to their employees.  

Helpful resources on the new FLSA regulations: 

Handy Reference Guide - https://www.dol.gov/whd/regs/compliance/wh1282.pdf

Paycom Whitepaper: https://www.paycom.com/resources/dont-underestimate-overtime-changes-a-look-into-overtime-under-the-flsa-and-how-businesses-can-prepare

ADP article - https://sbshrs.adpinfo.com/blog/new-overtime-rule-effective-january-1-2020-how-to-prepare