On May 18, 2016, President Obama announced that the Department of Labor had finalized major changes to the Fair Labor Standards Act (FLSA), which also modifies regulations around overtime. The changes are slated to go into effect on December 1, 2016. This provides a little breathing room for employers, but the new changes require many companies to implement some serious changes to their time tracking and overtime processes. These modifications to the FLSA are expected to extend new protections to over 4 million workers across the country because it qualifies them for overtime pay.
The standard salary level threshold changes from $455 per week (or $23,660 per year) to $913 per week (or $47,476 per year). In other words, any employee who earns less than the new threshold will qualify to earn overtime pay when he or she works over 40 hours in one week.
In addition to changing the overtime rules, the new regulations also raise the minimum salary for highly compensated employees from $100,000 to $134,004. (Note: a highly compensated employee is one whose pay is in the top 20 percent of compensation for the company, or one who is a five percent owner or more in the company.) All companies must put a mechanism in place that will automatically update the current compensation levels for all exempt employees once every three years.
Employers may use nondiscretionary bonuses and incentive payments to meet up to 10 percent of the modified salary level, including commissions.
Professional, executive, and administrative employees’ duties have not changed.
Highly compensated employees who are consistently coming in above the new threshold could end up costing the organization a lot of extra money in overtime pay. Look into options such as transferring tasks to a staff member who earns a lower hourly rate or who doesn’t have as much to do. It might even make sense to bring on new hires to lessen the burden on employees as well.
In some organizations, employees simply show up and work, then leave for the day without tracking how much they work. As a result, these employers won’t have any idea whether the company is complying with the new regulations. Start now to implement an accurate time tracking and attendance system, even for salaried employees. This allows supervisors to track hours and be aware of when an employee must be paid for overtime work.
Because these changes to the FLSA laws apply to exempt employees, it may make sense to reclassify employees as non-exempt to eliminate the risk. You can also raise an employee’s salary to put him or her above the threshold, but be cautious to maintain fairness.
In order to prevent the risk of being out of compliance, employers should start implementing new policies now. Contact PAYDAY to see how we can assist you with this new FLSA requirement.
PAYDAY Workforce Solutions provides a single database SAAS solution for Human Capital Management (HCM) including payroll, human resources, time management, benefits administration and onboarding to companies of all sizes and in various industries.
625 The City Drive South, Suite 250
Orange, CA 92868