New FLSA Overtime Rule; How do you communicate to Business Owners, Employers and Employees?
By Margie Faulk, PHR, SHRM-CP
July 2016
By now many of you have heard about the Federal Labor Law Act (FLSA) Overtime Rule that will go into effect on December 1, 2016. For HR professionals who are not aware, shame on you! It is up to us to guide management on those laws impacting the workplace. While there are several factors that are listed, small business owners need guidance on how they can prepare for the new Overtime Rules.
Topic
The new Department of Labor (DOL) Overtime Rule impacts 100% of Small Businesses with more than 10 employees. How are you impacted? The best way to prepare for the DOL new Overtime Rule, is to be knowledgeable about the changes and the criteria for changes. I am working with a real estate investment firm who doesn’t have too much overtime and therefore employees will not be impacted at all. However, the construction firm I provided services for, with over 600 employees, will be severely impacted. They will need to make decisions whether to increase salaries over the $47,476 threshold to maintain Exempt status or aggressively reduce overtime for employees. Remember, if overtime is not authorized, you must still pay the employee. Handle this issue in a discipline process. Communicate with Employees and monitor employee time reporting.
What are the highlights?
- Increased Minimum Salary Level. The employer pays the employee on a salary basis, and the employee earns a minimum salary (in 2004, the DOL set the minimum salary at $455 per week or $23,660 per year). Under the DOL’s final rule, the minimum salary level increases to $913 per week or $47,476 per year. The new salary level is set at the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage census region, currently the South.
- Increased Guaranteed Salary Level for Highly Compensated Employees. The Executive, Administrative and Professional exemptions or EAP regulations include a more-simplified duties test that employers may use to classify highly compensated employees (HCEs). In order to use the simplified duties test, employees must be guaranteed an annual salary. In 2004, the DOL required a guaranteed salary of at least $100,000. The revised rules raise the guaranteed annual salary to $134,004, beginning on December 1, 2016. This level represents the 90th percentile of full-time salaried workers nationally. Of course, employers are still free to use the standard duties test to evaluate employee classifications, even for highly paid employees, and need not utilize the simplified duties test (see FLSA Flowchart link below).
- Automatic Adjustments to Salary Level. The DOL has put into place a new mechanism that will automatically update both the minimum salary level and the guaranteed annual salary for HCEs every three years beginning on January 1, 2020. The DOL plans to update both salary levels using the same measures by which they have been set this year.
What should be considered?
- Identify the number of Employees that are impacted by checking payroll register and classification. Check how many Employees are under the $47,476 salary threshold;
- Identify the number of Employees that are over the $134,004 highly compensated Employees threshold;
- Decide as a company, how you want to handle the New Overtime Rule. Either you will increase salary of those identified or change their status. This decision will impact how your Employees handle the changes;
- Communicate to all Employees how the New Overtime Rule will be implemented. This communication is critical to the success of any changes you implement. Important to note; your employees are aware about the changes but do not know how the company will proceed. Ensure that you encourage employees to share their concerns with your HR Department or if you do not have an HR Department, your management Team.
We can help you prepare for this significant change. For more information on preparation for the New Overtime Rule, Contact us at www.hrcompliance.biz
Resources
Margie Faulk, PHR, SHRM-CP is a Senior Compliance Consultant for HR Compliance Solutions. Margie has 15 years of experience in human resources management, workplace compliance, workplace investigations, risk management and creating exit plans for volatile and aggressive employees. As a former Compliance Officer, Margie helps businesses, Employers and HR professionals reduce workplace risk when dealing with workplace issues. If you want further information about employee handbooks and other workplace resources and tools, contact Margie Faulk at mfaulk@hrcompliance.biz.