$47,476. This number is the new standard salary level for a “white collar” exemption to the Fair Labor Standards Act overtime regulations.
Under the new overtime rules, submitted by the Department of Labor, employees who make less than $913 a week, or $47,476 a year, will now have to be paid time and a half for any time worked, over 40 hours in a week. The minimum salary for highly compensated employees will now be $134, 004.
The new rule will affect an estimated 4.2 million workers. All businesses must be compliant by December 1, 2016. Use these tips and options to prepare your firm for the new exempt levels.
Tips for Preparing
The government usually only gives companies 60 days to comply with a new rule. Take advantage of the next several months to ready your company for compliance.
Employers need to evaluate role requirements and descriptions of every job in the organization. The company should determine specific functions, duties, and the average hours worked in that position.
Employees who earn at least $47,476 can only be nonexempt if they perform executive, administrative, or professional duties as detailed by the FLSA.
Figure out which employees meet these duty requirements and earn between $23,660 (the current minimum) and $47,476 (the new minimum). Then, determine how many hours these employees usually work each week. Make sure to factor in fluctuations in hours during peak business weeks.
Establish a system to track hours
Chances are your business likely has a system to track its employees’ hours. Review this system and determine if it will meet your needs moving forward. Employers need to analyze their time-keeping system for two reasons.
The first reason is that companies need to know how many hours their employees are currently working to prepare for the rule change. Employers need to know how many soon-to-be nonexempt staff members are working over 40 hours in a given week.
Businesses also need to have a system in place for when the changes go into effect. Establish a system that ensures compliance with the rule change.
The second reason is that the DOL requires employers to keep time records for each non-exempt employee. Your system of timekeeping must be able to accurately reflect each employee’s hours in a detailed and in-depth manner.
Regulate telecommuting and overtime hours
Under the new overtime rules, more employees will have to carefully record all time worked, especially while away from the office. Even a small task, such as responding to an email after dinner, is considered work.
Employees need to know what constitutes work and track time spent doing it, while out of the office. Your company may also consider such decisions as using tracking software on employee devices, or limiting telecommuting hours to specific core hours.
The DOL’s final rule included a provision that the salary threshold will increase every three years, after this year. The next threshold increase will be implemented on January 1, 2020. It is expected to rise to $51,000.
Companies need to look ahead to ensure they stay compliant not just this year, but in the years to come. Obviously, January 2020 is in the considerable future, but businesses should have the date in the back of their head and remember it when forming its compliance plan for this year.
Options for Compliance
There are many options that employers can take to comply with the new overtime rules. Here are five options for businesses to weigh.
1. Increase salaries to minimum level required to retain employee’s exempt status
Pros: This option would give your employees additional compensations and would keep their exempt status. Higher pay and the maintaining of a salaried position could improve employee morale.
It would also save your business time by removing the need to worry about these employees working overtime.
Cons: This option could result in salary compression that could necessitate compensation realignment throughout the organization. Salary compression could also lower office morale, and prompt cries of inequality.
2. Pay the overtime premium for overtime hours worked
Pros: This option could improve morale by giving all previously exempt employees overtime pay. It also promotes the idea that all employees are fairly rewarded for time spent working.
Cons: This option could increase liability for the employer if they fail to properly track, record, and report all hours worked. It could also hurt morale as previously exempt staff may now have less flexibility and may suffer a loss of prestige.
3. Reduce or eliminate overtime hours; hire extra workers as needed
Pros: This option allows companies to redefine job descriptions and job responsibilities, which could benefit the business. It also offers a chance for firms to be more creative and resourceful in how work gets done.
Cons: This option could result in a loss of productivity, as the staff can no longer work past 40 hours a week. It could also create liability if the employer eliminates overtime hours but employees work them regardless.
4. Decrease pay allocated to base salary (provided employee earns at least minimum wage) and add compensation to account for any overtime
Pros: The biggest pro of this option is that it would hold employer costs constant. Each employee would be compensated roughly the same amount as they were when exempt. Maintaining costs allows businesses to add part-time employees if deemed necessary.
Cons: This option could create liability if the company fails to track, record, and report all hours worked.
5. Restructure the workforce, transferring duties from newly nonexempt workers to those who have had their salaries increased to remain exempt
Pros: This option, like number three, offers employers a chance to redefine job descriptions and job responsibilities, and provides them an opportunity to be more creative and resourceful in how work gets done.
Cons: This may create questions of equity and fairness amongst employees. It could also require training for supervisors of newly nonexempt employees.
In the fiscal year 2015, there were 10,496 claims for overtime violations with $137.7 million paid in back wages. This cost does not even include legal and administrative fees necessary for these trials.
Employee exemption is a big issue for employers, and it will only continue to grow in importance with the new overtime rules. Use these tips and options to ensure your company’s compliance.
Don’t work overtime to figure out what your business will do about overtime.