New Fair Labor Standards Act Regulations
On Wednesday, May 18, 2016, the Department of Labor (DOL) issued its anticipated updated white collar exemption regulations. The new regulations will take effect on December 1, 2016. So, employers have less than four months to become compliant.
Notable items to be aware of:
- The exempt salary threshold will increase from $455 per week, or $23,660 per year, to $913 per week, or $47,476 per year for the administrative, executive, learned professional, and creative professional exemptions.
- Employees paid less than $913 per week, or $47,476 per year must be paid overtime for any hours worked over 40 in a workweek.
- Organizations have less than four months to adjust their pay practices, as well as employee classifications.
- There were no changes to the duties tests for each exempt classification.
- Currently, there is a highly compensation threshold of $100,000 for employees who perform one or more exempt duties (e.g. executive, administrative, learned professional, or creative professional). The new regulation increases this amount by 34% to $134,004 per year.
- The final rule amends the salary-basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new standard salary level of $47,476 per year.
So what is next? Employers need to move forward with determining how the new regulations will affect their unique workforces and put into place plans to ensure compliance with the rules by December 1st. This may be accomplished by:
- Quickly assessing the costs of salary increases versus reclassification.
- Determine if it is feasible to raise the salaries of current exempt individuals who are under the new threshold of $913 per week, or $47,476 per year. Remember, that employers may now include non-discretionary bonuses and commissions in this calculation up to 10 percent of the required salary level, as long as employers pay those amounts on a quarterly, or more frequent basis.
- The difference between the pay of those with raised salaries and their bosses may shrink as well.
- Be aware that if you raise the pay of employees in the same position above the new exempt salary threshold, the difference between the pay at the top and low performers may be compressed.
- Do nothing other than reclassify the employee who is under the $913 per week, or $47,476 per year. Take the employee’s current annual rate (salary base pay amount), divide it by 2,080 hours (at 40 hours per workweek), to get an hourly rate and change their exemption status to nonexempt from exempt. Communicate that rate to the employee and emphasize that any overtime above and beyond 40 hours per week must be approved in advance of the time worked. Make managers responsible for staying within their payroll budgets by limiting the amount of overtime worked, thus paid out.
- Implement and communicate the changes to the affected employees. Will these be in one-on-one meetings, small group settings, large group meetings, memorandums, or a combined approach?
- Implement a timekeeping system that allows all nonexempt employees to accurately record their time worked.
- Check whether state wage notification laws require a pay period or 30 days’ notice of any change in pay and send out notices with regards to the changes, if required.
- Make sure that you train your organization’s managers on how to:
- train nonexempt employees to track and report time worked,
- avoid encouraging work after hours, and
- manage overtime.
When communicating these changes to employees, employers should emphasize that the reclassification was a result of the new FLSA regulations. They should also note that any reclassification is not a reflection of the value of an employee’s contributions to the success of the organization. Lastly, the organization should communicate that they will work with employees impacted by the reclassification to make a successful and positive transition.
For additional information on this topic, or if your organization needs assistance with an FLSA audit, please contact us at www.newfocushr.com.
Written by: Kristen Deutsch, M.B.A., CCP