FLSA Overtime Rule: Start preparing now

May 19, 2016

Register for our FLSA webinar on September 28 1pm EST.

 

Businesses have been coping with a dizzying number of changes to how they operate and compensate employees.  It would be understandable if you were feeling fatigued, but the FLSA Overtime regulation released on May 18, 2016 is too big to ignore.  Not since the ACA has a change in labor standards been this far reaching or potentially costly.

Here’s what you should know.

The Department of Labor under the Fair Labor Standards Act (FLSA) has released new regulations regarding overtime compensation set to go into effect on December 1, 2016.  Management, administrative and professional employees earning up to $47,476 must be paid overtime at a rate of one-half for all hours over 40 worked each week.   All businesses need to comply regardless of size, location or entity type.    Only a few industries are exempt.

It is estimated that this rule will affect 4 million US employees in the first year.

 

There are four major ways you’ll need to review your approach to dealing with your current employees and hiring for future positions:

Workforce monitoring:  In addition to the employees who fall under the FLSA rule from the outset, if your employees below the threshold become non-exempt in any way (such as a Salary Non Exempt) you will be forced to track their hours.  This may require an expansion of your time management system beyond hourly employees.

Communication and morale:  Salaried employees who were not previously tracking their time may perceive this new requirement as burdensome and react as if it is a demotion.  Employers may need to focus on explaining and emphasizing that the reason for the change is compliance with a government mandate, not a management decision or a reflection of the employees’ value to the company.    One tool that can help is a self-service and mobile time tracking application to help your people feel empowered while they comply with the new regulation.

Evaluate labor costs:  You will need to calculate the financial impact of this change on current employees and future hires with an eye toward any non-exempt employees who will be in this pay scale immediately or soon after hiring them.  There will also be a new cost/benefit analysis for any future hire.    One strategy will be to convert salaried workers to hourly employees who will track their time.  Base pay can be adjusted to compensate for expected overtime pay or hours can be capped at 40 per week and part-time workers can take on the additional work-load.  These are likely to be unpopular decisions requiring communication and additional time tracking capabilities.

Risk management:  Well defined job descriptions, chains of command, daily time tracking and reporting, and accurate employee categorization will be critical.  If you are not careful about monitoring employee definitions and hours worked, this could cost you far more than you are paying today in wages.  Additionally violators could face fines up to $10,000 and criminal prosecution.

 

Take Action Now:

This is a complicated matter that requires thoughtful planning and advanced notice to employees of what could be significant changes to their daily routines and pay structure.  Commonwealth can help you get your arms around the issue and develop a plan for becoming and staying compliant while reining in costs as much as possible.  An Employee Audit will identify the positions that will be subject to the new rule, estimate the financial impact on your business, recommend tracking tools to meet the reporting requirements, and provide options and guidance on what you can do to manage your labor costs.

See the Commonwealth FLSA Overtime Resources:

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