NEW FLSA OVERTIME RULE RELEASED: WHAT’S NEXT?
An overview of the new overtime rule under the Fair Labor Standards Act (FLSA) has been released by the Department of Labor and the White House. The new rule extends overtime protections to 4.2 million additional workers who are not currently eligible under federal law. Although there was definitely a need to update the standards regarding overtime, the large increase (double) in employers’ financial obligations implemented at one time will be painful to many businesses, specifically to small business and non-profit organizations. Opponents to the one-time increase, suggest that an incremental increase may have been less burdensome on many organizations that may have to close their doors, cut funding, cut programs, cut hours and staff, and the list goes on. Many groups lobbied, submitted comments and requested reconsideration of the proposed requirements; and also requested consideration for incremental increases to lessen the blow on these organizations’ budgets. The process has taken place, and we are now faced with the implementation of the new rule. The New FLSA Overtime Rule Released: What’s Next?
So what’s next?
Here are: (1) the Changes to the FLSA OT Rule; (2) 5 Steps to Transition for Employers/HR; and a (3) Sample letter of employee classification change, to help HR Administration.
I. New Overtime Rule
New Overtime Rule from the Department of Labor & the White House: The final rule will become effective on December 1, 2016, giving employers more than six months to prepare. The final rule does not make any changes to the duties test for executive, administrative and professional employees. (GWHR tip: Employers/HR should consider and note their payroll cycle concerning the required date of 12/1/16.)
- Raised the salary threshold indicating eligibility from a minimum of $455/week to $913/week ($47,476 per year). It will be tied to the 40th percentile of the lowest Census region (currently the South). According to the DOL, employers have a few options when addressing the gap:
- Increase salary to minimum $47,476/year
- Change classification to non-exempt and provide overtime pay for hours worked over 40 hours
- Limit employees to 40 hours
- Reduce the amount of pay allocated to base salary (provided that the employee still earns at least the applicable hourly minimum wage) and add pay to account for overtime for hours worked over 40 in the workweek, to hold total weekly pay constant; or
- Some combination of the above.
- Raised the “highly compensated employee” threshold – from $100,000 to $134,004 – above which only a minimal showing is needed to demonstrate an employee is not eligible for overtime.
- Updates to the salary level will occur every three years, the first update to occur January 1, 2020. DOL will give 150 days’ notice prior to change-August 1, 2019. DOL estimates the first update will result in the salary level being set at $51,168.
- Employers will be permitted to use commissions and non-discretionary bonuses (up to 10%) to satisfy the new salary level, paid quarterly, and subject to a “catch up.”
- No changes to the duties test. DOL sought comments regarding whether to apply a requirement that exempt employees spend more than 50% of their time performing exempt work, as in California.
II. 5 Steps to help your Company’s FLSA Overtime Rule Transition
- Be sure that all employees are properly classified. Audit all employees and review all that are affected by the change. Be sure to use the same procedure to document all employee changes, notes, adjustments in the same manner to avoid discrimination.
- Strategize on employer options and course of action: each employer will handle this differently. Some will stop certain programs (like telework), while others will bump up salaries to meet the new minimum salary requirement.
- Change applicable policies and inform all employees of the handbook and policy changes (if applicable-telework policy for example). This would also be a good time to update the company’s time/hour tracking policies if needed. Be careful to add or update your retention of these documents to your procedures. Employers must retain time-card information.
- Communicate: Prepare letters or schedule individual meetings to discuss changes with employees. The sample letter below may help. Please note (if organization has a lot of affected employee classification changes): Before sending this letter to any employee, the company/Human Resources may want to release a separate company-wide letter explaining the general changes to the Fair Labor Standards Act. Some employees are not as aware of these topics as HR Professionals may be.
- Be available and prepared to answer questions. Provide a place to discuss issues with Human Resources if needed. Provide training/tools for hour tracking to newly classified non-exempt employees.
III. SAMPLE COMMUNICATION TO EMPLOYEES WHO WILL CHANGE STATUS
Following the Fair Labor Standards Act’s regulatory changes to exemption status, (Company Name) has conducted an audit of all positions within our organization, which included a review of job descriptions as well as interviews with all supervisors and managers. We have found that your duties no longer meet the criteria of an exempt employee.
Therefore, effective (date) your position will be reclassified as nonexempt, and you will now be eligible for overtime for any hours worked over 40 in a workweek, subject to our usual procedures for approval of overtime. Other policies you need to be aware of are (insert any policies that may cause a change in benefits or employment practices for employees due to their reclassification).
Should you have any questions about this change, please do not hesitate to contact me.
Human Resources Manager
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