The Website and Blog of HR Author and Speaker Lori Kleiman

New Regulations for the Fair Labor Standards Act: What You Should Know

What should YOU know about the new changes to the Fair Labor Standards Act?

You may have heard – the Department of Labor finally released the required changes to the Fair Labor Standards Act last week and it’s not a pretty story for business. This is no longer something we are talking about – it is going into effect December 1. 2016 and you’ve GOT TO GET ON BOARD NOW!

Why is this being done?  According to statistics, in 1975 62% of American workers qualified for overtime, in 2016 the number has fallen to 7%. The government is attempting to move the number back up – their estimation is that on the effective date of the new regulations there will be 35% of the workers in 2017 who now qualify for overtime. That means business will now be paying overtime to an additional 28% of the workforce.

The main issue that will impact your organization is the increase to the base salary for employees you consider exempt from overtime today. As of December 1, 2016, you will have to pay all employees exempt from overtime a minimum of $47,476 per year – and that number will increase annually each year! In 2020 for example, the number is expected to be $51,000.

Two wins for business – Bonus and commissions will be counted toward the threshold – as long as they do not exceed 10% of total pay. So, employees can earn approximately $4,700 in bonus and commission, but their base still has to be in the range of $43,000.  Also, the increase to the rate was reported to rise annually. It will now rise every three years. While the impact may be similar, the administrative burden will be far less.

Employees will still need to meet the criteria of an exempt employees, which has not changed from the past requirements. The current classification can be found here for those unsure of who qualifies as an exempt employee. In addition, there had been a threshold in the current regulations that provides exempt status to some employees with a salary over $100,000 – that number will rise to $122,148.

So what should you do NOW……

  1. Review all employees with a salary below $47,476. Consider the amount of time they are actually working in a typical week. If it is a great deal more than 40 hours per week, you may decide that it’s less of an impact to raise their salary. If the amount of overtime exposure is minimal, you may elect to convert them to hourly and pay for the time they work over 40 hours.
  2. Contemplate the option of a hybrid category – “Salaried Non-Exempt.” Under this classification you would still offer employees a salary below the threshold, with the understanding if they work in excess of 40 hours they would be paid overtime based on the equivalent hourly rate.
  3. Consider your 2017 budget now. This will impact almost every business in some way. You likely can’t get by with fewer workers – so you’ll need to determine how this hit to the bottom line can be absorbed.
  4. Evaluate your job descriptions to determine if positions are classified properly. If an employee is currently paid over the new threshold, ensure that their job description is reflective of an exempt position. If not, you will open a whole different host of issues for misclassification. If you are uncertain, the current classification can be found here. The page is not updated for the salary change, but the exemptions remain the same.
  5. Review your employee handbook and policies on classification and overtime. If you will have more employees that are overtime eligible your policy for overtime work and approval should be clearly communicated to employees and your management team.
  6. Consider systems you may need to implement, or capacity increases to your current system, as you have more employees tracking hourly time worked.

These are initial action items required given the announcement by the Department of Labor. Free free to reach out to me if you have specific questions or I can help with policy changes. As always, please remember that I am not an attorney – so if you have specific issues with your organization, consult your attorney.

So – let’s all try to figure this out together. How will this impact your organization? What are you planning to do to meet the new obligations?

Additional Resources:

Click here for the announcement by the Department of Labor…

A quick overview in USA Today last week Click here

The Society for Human Resource Management Information Click here

Photo used under the following license.

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