Get Your Business Ready for the FLSA Overtime Law
There have been a variety of changes lately, from the ACA to the FLSA. Despite all of this, you still have to be ready for when these come into affect.
With that said, you’ve heard about the FLSA Overtime Law, but what is it and how do you prepare for it?
What Is This “New Rule?”
The Fair Labor Standards Act requires that employees earn a minimum wage, as well as overtime pay for hours worked over 40 in a week, but it also provides that employees who perform certain job duties may be exempt from these requirements. TheDepartment of Labor (DOL) has the power to make rules that relate to these exemption categories, including what duties will qualify an employee for an exemption, how they are paid, and how much they are paid.
The new FLSA rule affects the minimum salary required for many employees to qualify as exempt. Previously, the minimum salary for all executive and administrative employees, and many professional employees, was $455 per week, or $23,660 per year. The new rule sets that minimum at $913 per week, or $47,476 per year.
Please note that the new rule will become effective on December 1, 2016, meaning employers should comply by that date.
Are you actually ready for FLSA? Here are eight steps to get you prepped for the FLSA Overtime Law.
8 Steps to Get Your Business Ready for the FLSA Overtime Law
1. Consider Your Company’s Policies & Practices. With the possible reclassification of a number of your organization’s employees, we recommend reviewing your current policies and procedures. This is especially important for organizations and businesses who don’t currently have many non-exempt employees, and may not be as focused on policies that deal with timekeeping and work hours.
Pro Tip: While reviewing the recommended policies, keep in mind the golden rule of wage and hour: non-exempt employees must be paid for all time they are “suffered or permitted” to work. This doesn’t just mean time in the office, but all time, whether approved by the employer or not.
Pro Tip: If these policies and practices aren’t currently covered in your employee handbook, we recommend adding them now, or distributing them separately as handbook amendments. Once distributed, employees should sign-off to acknowledge their acceptance and understanding of these important policies.
2. Identify the Affected Employees. In your business or organization, identify who are the exempt employees that are paid at or below $47,476.
Pro Tip: Start identifying the exempt employees at or below $52,000, so wage compression (when the salary floor of a position is increased but the ceiling is not) can be part of your big picture evaluation.
3. Calculate the Total Hours Worked By Each Identified Affected Employee. In order to properly assess compensation in the upcoming steps, it’s necessary to first determine an accurate number of hours worked for each employee identified.
Failure to properly estimate an employee’s hours worked may lead to shocking results when you reclassify them as hourly. For instance, calculating and employee’s new hourly rate based on the assumption that they’re working 40 hours per week could lead to a huge amount of unexpected overtime liability if the employee has actually been working more than 40 hours per week on a regular basis.
In order to get the information you need, you’ll have to ask your exempt employees to do something new: track their time. How to go about this is up to you, but here are a few options to measure current hours worked:
- Ask the employees to begin tracking their hours worked. This is our preferred method, as it will likely result in the most accurate timekeeping records. You can ask employees to use the same timekeeping system as non-exempt employees, have them track their time on the computer, on a paper timecard, or even on a phone app – it’s up to you.
- Ask managers to begin tracking hours worked for their exempt employees.
- Ask managers to estimate the number of hours worked for each of their exempt employees.
- Utilize the standard company workweek (e.g. Monday through Friday, 8:30 am to 5:00 pm), or the standard workweek for the position in question, then estimate the number of hours worked in excess of 40 per week.
Pro Tip: Asking exempt employees to begin tracking hours worked without providing detailed reasoning may cause confusion. Be sure to clearly communicate with employees that this is for tracking and preparation purposes only and will have no effect on their current salary. The sole purpose is to prepare for compliance with the new laws – not micromanagement.
Pro Tip: Having your affected employees and their managers use time and attendance software is the easiest way ensure accurate data collection during this transition. Employees can punch in and out of work in real time, eliminating the need to submit paper time sheets. Managers can then review their employees schedules to see on average how many hours they worked, allowing for more transparency.
4. Changing Habits. Changing habits can be a challenge, but changing the habits of your formerly exempt employees with regards to timekeeping is critical to prevent a wage and hour violation. These employees are likely used to “running the clock” after hours – many of them may be used to responding to work email, finishing up projects, taking client calls, or engaging in other work tasks during non-work hours. While intentionally working off-the-clock may not be your employee’s goal, we want to be sure that the policies are clear about expectations with respect to off-the-clock work and the organization’s commitment to recording all time worked by non-exempt employees.
5. Evaluate the Options and Decide on Appropriate Compensation. Identify each employee’s current base salary and total incentive pay (bonuses, commissions, any other incentive pay). Add these amounts to get their total annual earnings.
6. Communicating Changes. Are there going to be changes in the timekeeping policies and practices, the off-the-clock work policy, bringing your own device policy, meal and rest period policies, overtime policies and practices, travel time policies and practices, or payroll changes? Be sure to clearly communicate these changes with the whole company, as well as necessary people. When doing this, be sure to consider:
- Who is communicating these changes?
- Who do you need to communicate with? Do you need to talk to the whole company or just the affected employees?
- What will be communicated? Give the necessary information for the FLSA classification and any other related materials.
- How will the changes be communicated? Will you do this through an email, one-on-one meeting, web meeting, or another way?
- What’s the timing for the communication? Some states have requirements for advance notice of any changes to pay. Others require issuing written notice of the change.
- What should be documented? Assuming your state does not have specific documentation requirements, we recommend clearly documenting these changes for the employee’s personnel file.
7. Conduct Training. Set aside time to train your supervisors and managers to ensure that new and updated company policies and practices are accurately communicated, understood, followed, and enforced. In addition, managers and supervisors must understand the company’s overtime practices and the budget implications of reclassifying employees. Managers also may need to examine their staffing models to ensure adequate staffing for service or product output.
Employees must be trained so that they are aware of each policy and how it affects them and their work each day. Employees must also understand that once they are trained and acknowledge the policies, failure to comply will result in discipline. Both managers and employees must be aware of what constitutes compensable time, as this is likely a large adjustment.
8. Monitor and Revise Company Budgets. Once you’ve decided how to deal with affected employees, you should be able to analyze company budgets to determine the impact. Depending on the scale of the changes your organization needs to make, continuous monitoring of budgets may be necessary for the first six months to a year after you implement changes.
With these 8 steps, you can get your company ready for the FLSA changes. Just remember that these changes are fast approaching with a deadline to comply byDecember 1, 2016. Click here for a FLSA overtime changes checklist.